SpaceX (SPCX) shares have experienced a volatile ride since going public. After surging to an all-time high of around $226 in mid-June, the stock has pulled back significantly and is now trading roughly 41% below that peak, a level even lower than its first-day opening price. The pressing question for investors is: where will this company be in five years?
Space business is still important, but AI has become the new primary focus. SpaceX was once best known for rocket launches and its Starlink satellite internet service. In the second quarter, its space and connectivity operations still accounted for approximately 67% of total revenue. However, the real growth story is now shifting toward artificial intelligence. In February, SpaceX completed an all-stock acquisition of Elon Musk's xAI, valuing the deal at $250 billion. This transaction gave the company access to the cutting-edge Grok large language model and enormous computing resources, including the Colossus supercomputing facility, which boasts over 1 million Nvidia H100-equivalent GPUs. The results are already visible: total second-quarter revenue surged 92% year-over-year to $7.81 billion, with AI business sales skyrocketing 248%. SpaceX has signed several major contracts, including a deal with Anthropic to lease approximately 325,000 GPUs for about $1.25 billion per month, and a similar $920 million monthly agreement with Google. If executed smoothly, these two contracts alone could contribute roughly $26 billion in annualized revenue, enough to fuel rapid growth for several quarters.
An ambitious Terafab plan is underway. To maintain its long-term advantage, SpaceX is collaborating with Tesla to build a massive semiconductor manufacturing facility called Terafab, with the goal of producing 1 terawatt (TW) of AI computing power annually—exceeding the current global supply. The chips produced will be split between the two companies. However, this requires a staggering investment. The capital expenditure for the first phase is estimated at $16.8 billion; if all planned phases are completed, the total investment could soar to $119 billion. This money could have been used for other projects, or returned to shareholders through buybacks and dividends. The success or failure of Terafab will have a massive impact on the stock price in the coming years.
Looking ahead five years, strong growth is expected, but challenges are significant. As the AI infrastructure business continues to expand, SpaceX is likely to sustain robust revenue growth. However, this boom is unlikely to last forever. Companies that are currently heavily investing in computing power are beginning to develop their own chips; increased competition in the AI processor space could also slow down the entire industry's growth rate and compress profit margins. On the valuation front, SpaceX's price-to-sales ratio has fallen from around 116x in June to its current 61x, but it remains far above the S&P 500's average of roughly 3.8x. Overall, SpaceX's pivot to AI creates a massive revenue potential, but it also comes with exceptionally high capital expenditures and valuation pressure. For long-term investors, it may be prudent to remain cautious until there is clearer information regarding the sustainability of this growth and the prospects for capital returns.
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