Key Points
SpaceX has undoubtedly become one of the world’s best-known and most-watched stocks since last month’s IPO.
The hype and buzz surrounding its initial public offering, however, has also aggressively inflated SpaceX stock’s price.
Meanwhile, shares of one of its smaller competitors are down largely due to SpaceX’s IPO but are ripe for a recovery.
There's little doubt that Elon Musk's Space Exploration Technologies (NASDAQ: SPCX) will remain the biggest and best-known name in the space business for at least the next five years. In terms of performance, though, bigger isn't always better. There's another much smaller space company that's likely to be more rewarding to its shareholders, not despite its size, but because of it.
That company is Rocket Lab (NASDAQ: RKLB).
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Rocket Lab in focus
If you're not familiar with it, it's simple enough. Rocket Lab makes reusable orbital launch vehicles. In other words, rockets. Its flagship product/service right now is a relatively small rocket -- called Electron -- that's capable of putting up to 660 pounds worth of payload into low Earth orbit. And it's now been launched 91 times, deploying over 260 satellites.
The company's thinking bigger, though. While still in the testing stage, Rocket Lab's Neutron rocket, expected to begin its initial flights near the end of this year, can lift up to 14 tons worth of cargo, or even launch missions to Mars. With this sort of medium-lift potential, Rocket Lab will be competing with some of SpaceX's launch capabilities.
In the meantime, the company also provides satellite components and can even help companies design and build this orbiting equipment.
Ready to outperform
But can Rocket Lab actually beat massive SpaceX at its own game?
Probably not. However, that's not quite the question investors are asking. What most investors want to know is how the two stocks will perform compared to one another for the foreseeable future.
That's where recently IPO'd and richly valued SpaceX shares face a distinct disadvantage. Like most other initial public offerings, this one is likely to founder for at least a year (if not more) while the market digests the fact that the $1.6 trillion behemoth isn't likely to justify this market cap with actual earnings anytime soon.
For perspective, SpaceX generated just under $19 billion in revenue last year, with the bulk of that coming from artificial intelligence rather than space-launch services or satellite-based broadband service Starlink.
Granted, that's the market where Musk expects most of the growth opportunity to take shape. SpaceX's IPO prospectus suggests there's $26.5 trillion in AI business up for grabs in the foreseeable future.
The only problem? It's not clear where he's getting the number, nor is there a time frame attached to it.
There's also the not-so-small matter that the AI business is already a crowded one, with powerhouses like Alphabet and Microsoft capable of keeping SpaceX's artificial intelligence efforts in check. It would take a sizable chunk of this potential revenue to justify SpaceX's value, and there's no guarantee it will produce it.
One thing is for sure. There's not enough future revenue on the table for Starlink or space launches alone to justify SPCX stock's present price, never mind the company's complexity and subsequent lack of focus.
Meanwhile, shares of tightly focused companies have been more than halved since their May peak, mostly to make room for SpaceX's arrival to the publicly traded market. This only adds to the potential rebound stemming from this year's expected year-over-year revenue growth of 53%.
James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Rocket Lab. The Motley Fool has a disclosure policy.