Most Investors Are Overpaying for SpaceX Stock. Here's the Price I'd Actually Buy At.

Space Exploration Technologies (SPCX +7.36%) is one of the more attention-grabbing stocks on Wall Street and Main Street. Wall Street analysts are generally bullish on the stock, with an average price target of $223 per share for the recent IPO. That’s about 40% above its current share price. Retail shareholders bought a lot of stock early on, but recent selling has left retail inflows into SpaceX at about $3.4 billion.

Despite investor optimism, I think most are overpaying for the stock. To be sure, SpaceX could become a transformational business across multiple industries, generating unparalleled revenue growth. But the market is pricing the stock as if Elon Musk‘s trillion-dollar revenue projection for 2030 is an eventuality, not a highly uncertain possibility. There’s no margin for error in SpaceX stock today. Here’s the price I’d actually buy it at.

How much could SpaceX be worth?

SpaceX has the potential to transform both the telecommunications industry and the AI industry with its ability to launch satellites into orbit.

Its Starlink satellite internet service has already proven capable of providing high-speed internet in remote locations where traditional internet infrastructure is lacking. That’s enabled it to garner 12 million subscribers, doubling year over year last quarter.

Its orbital compute nodes, Starmind, harness solar energy and the vacuum of space for cooling to run efficient data center clusters. That could increase total capacity and reduce operating costs for compute, helping SpaceX win market share for AI training and inference infrastructure.

Their continued growth depends on reducing costs to add bandwidth or compute capacity to the constellation. While that requires advanced engineering at the level of individual satellites, one of the biggest factors will be successfully deploying Starship, its fully reusable super-heavy-lift rocket. Not only does it have a greater capacity to launch satellites into space than the current Falcon 9 rockets SpaceX uses, but it also has the potential to reduce the time between launches.

It’s important to note that there’s still a long way to go before SpaceX demonstrates that this is a viable business. It has to perfect its satellite and rocket technology to the point where the cost and deployment speed are at least on par with those of terrestrial data centers. As of today, it has prototype designs for its data center satellites, and it remains in the testing phase for Starship.

If it successfully demonstrates a deployment speed or cost advantage over terrestrial options, it could generate substantial revenue with a meaningful operating profit margin. Demand for AI compute and broadband internet continues to increase year after year. Still, $1 trillion in revenue by 2030 seems like a long shot even with perfect execution. That would require not only perfecting the technology but also an exceptional launch cadence. It assumes no bottlenecks in adding capacity to its deployment. And it assumes the supply of compute remains extremely tight.

Even at two-thirds the revenue outlook, though, $666 billion, the company could be worth $4 trillion to $6 trillion based on a price-to-sales multiple between 6 and 9. At a 15% required rate of return, that makes the stock worth about $217 today at the midpoint. So, the current price of around $159 may be a bargain. The problem is that’s the price I’d pay if everything goes great. I don’t have much confidence that those numbers are achievable.

There’s even more risk in investing in SpaceX

Not only is SpaceX’s revenue outlook heavily dependent on technology it’s yet to perfect, but there are also a few other risks to consider for investors.

First is the cost of capital. SpaceX isn’t expected to generate positive free cash flow for years, and it requires massive amounts of capital to build its rockets, satellites, and ancillary facilities. Morgan Stanley analyst Adam Jonas estimates SpaceX will require $672 billion of external capital between 2027 and 2034. That’s a huge demand for capital, and it could lead to further dilution of the stock if the debt markets can’t support it.

The second risk SpaceX faces is regulatory challenges. SpaceX needs clearance to launch the tens of thousands of satellites it’s planning for its Starlink and Starmind constellations. It needs wireless spectrum licenses to transmit data. Some licenses work on a country-by-country basis, adding significant overhead. Some may hesitate to grant SpaceX a de facto monopoly over low Earth orbit satellites due to the potential for congestion that could block future launches.

Any regulatory or technological delays further delay SpaceX’s path to positive cash flow, adding debt to its balance sheet over time. With a relatively high cost of capital, that could significantly reduce the value of the business.

I think a more likely scenario is that SpaceX faces significant delays, capacity constraints, and bottlenecks, limiting the amount of compute capacity it can deploy. As such, revenue won’t climb nearly as high or as quickly as management projects. Investors may continue to pay an elevated price for the stock on the promise that the investments will pay off eventually. We’ve seen that play out with Tesla, Elon Musk’s other company, even as it misses deadline after deadline.

With all the risks in mind, I think a more reasonable outlook for the business is $300 billion in revenue in 2030, implying a market value of $1.8 trillion at six times sales. At a 15% required return, I’d pay $78 per share today. Even then, I’d keep my position relatively small. That’s cheap enough to offer downside protection and upside potential even if things don’t go according to Musk’s plan.