Key Points
Investing in SpaceX (NASDAQ: SPCX) after its record-breaking IPO may or may not be a wise investment decision. Never before have we seen a business quite like SpaceX. Even the company’s IPO prospectus admits that its most promising opportunities are still “relatively early stage.” This means most of the company’s valuation will be based on future growth, not past success — a difficult reality for any investor to accurately process.
Here’s the thing: Uncertainty regarding whether SpaceX will succeed as a long-term investment won’t stop it from going on a massive spending spree. The company believes it has identified “the largest actionable total addressable market in human history.” In total, SpaceX believes its growth potential amounts to $28.5 trillion — significantly higher than its initial $1.77 trillion IPO valuation.
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With $75 billion in fresh capital, expect SpaceX to deploy its new funds quickly to bolster growth. Which companies will be on the receiving end of SpaceX’s riches? One clue in the company’s IPO prospectus reveals a likely answer.
SpaceX may look to acquire these two nuclear energy companies
Many people think of SpaceX as a rocket stock, or perhaps associate the company mostly with its Starlink satellite internet service, which also provides remote mobile connectivity. But the vast majority of SpaceX’s future spending and revenue will relate to a different opportunity: artificial intelligence.
SpaceX only sees a $370 billion total addressable market for its space solutions business, which includes rockets. Another $1.6 trillion in market opportunity is associated with connectivity efforts like Starlink. A whopping $26.5 trillion of the company’s total claimed addressable market of $28.5 trillion is exclusively reserved for AI opportunities.
Put simply, the future of SpaceX relies on its ability to scale its AI business. That means building more data centers. The biggest challenge won’t be funding or creativity, but physical. “We believe that the key constraints in the continued growth of AI are physical — chip manufacturing, data center infrastructure, and power generation; the future of AI will be determined by the control of the physical stack,” the SpaceX IPO prospectus warns.
Image source: Getty Images.
SpaceX is already spending billions to scale its own chip manufacturing capacities. It is also spending billions to scale its data center infrastructure. Where the company arguably falls short, however, is in power generation. SpaceX’s xAI business has been a heavy purchaser of Tesla (NASDAQ: TSLA) Megapacks — huge battery packs that can store and deliver power to its data centers. Tesla’s solar arm should also be leveraged by SpaceX long-term to generate power for its data centers. But SpaceX will need more power fast. There’s one potential solution: nuclear. But nuclear energy is historically slow to get fully online. At least on paper, a relatively novel form of nuclear — small nuclear reactors, or SMRs — could get low-carbon nuclear energy online much faster.
Sam Altman, the CEO of OpenAI and ChatGPT, also recognized the need for more power generation to fuel the data center build-out. That’s why he was an early investor in Oklo Inc. (NYSE: OKLO), a nuclear stock specializing in small modular reactors that can be built more quickly than conventional nuclear power plants and colocated directly next to data center infrastructure.
NuScale Power (NYSE: SMR), another small modular reactor stock, is taking a similar approach. But while Oklo is focused on direct data center sales, NuScale is focused on tying its nuclear systems directly to the grid through utility partnerships.
Investors will need to do their due diligence on both Oklo and NuScale Power. While both companies are pursuing small modular reactor systems that — at least on paper — look like ideal fits for SpaceX’s rising power needs, the companies are taking very different approaches when it comes to their go-to-market strategies.
Still, these two stocks should top your research list if you’re looking for companies set to benefit from the impending SpaceX spending spree after its IPO. SpaceX already has a clear and defined plan for chip manufacturing and data center construction. Its plan for energy generation, however, is relatively less mature.
“Capital is pouring into data center development, but there are real constraints on growth,” warns a recent report from McKinsey & Co. The first constraint on growth should have SpaceX bulls interested in diving deeper into both Oklo and NuScale Power. “Incumbents,” the report concludes, “can’t meet demand for power.”
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
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