Cathie Wood, co-founder and chief executive of Ark Invest, has been a longtime supporter of Space Exploration Technologies (SPCX +1.61%), more often known as SpaceX. Through the Ark Venture Fund, she invested in the company well before it even went public. So it wasn’t surprising to see this famous investor load up on SpaceX shares on the company’s first day of trading — and make it one of her biggest holdings.
SpaceX completed the biggest initial public offering ever on June 12 when it raised $75 billion. (It actually raised even more a few days later, with the final amount totaling $85.7 billion after underwriters exercised an overallotment option.) SpaceX soared in its first days of trading, and as of the June 18 market close, it was up 23% from its opening price of $150.
Now you might be wondering if you should follow expert investor Wood and go all in on SpaceX. Let’s find out.
Image source: Getty Images.
Another Elon Musk-led company
It’s important to note that Wood isn’t just a longtime investor in SpaceX. She is also a longtime supporter of another Elon Musk-led company: Tesla. In fact, Tesla is the No. 1 holding, with a weight of more than 9%, in her flagship Ark Innovation exchange-traded fund. Wood’s strategy is built around investing in innovators early on and then benefiting as they prove their technologies over the long run. Getting in on such companies does carry some risk, but rewards may be extremely high if the companies are successful.
Wood, on SpaceX’s first day of trading, loaded up on shares for four of her funds, and the company now represents a significant portion of each. In Ark Innovation and Ark Next Generation Internet, it’s among the top 10 positions. In Ark Autonomous Technology and Robotics, it’s in the top 5. And in Ark Space & Defense Innovation, it holds the No. 1 spot with a weight of more than 9%. So it’s fair to say that Wood has gone all in on SpaceX and sees its long-term potential.
Space Exploration Technologies
Today’s Change
(1.61%) $2.48
Current Price
$157.09
Key Data Points
Market Cap
$2.0T
Day’s Range
$147.12 – $165.47
52wk Range
$147.12 – $225.64
Volume
5.2M
Avg Vol
290.6M
Now, let’s consider if loading up on SpaceX shares is the right move for you. It’s true that SpaceX is an innovator. The company is involved in three growth businesses: rocket launches, satellite-based internet connectivity, and artificial intelligence (AI). These aren’t three completely separate endeavors, though. Instead, Musk aims for these businesses to work together to support technology development and earnings. For example, SpaceX’s rockets transport materials to space for the connectivity business, resulting in lower costs and more control over operations.
And speaking of the connectivity business, Starlink, it’s now the revenue driver for the company, bringing in $11.4 billion in revenue last year — the company’s total revenue was $18 billion.
“A compelling investment case”
Of course, Starlink delivers the most revenue today, but each of SpaceX’s units could offer interesting growth down the road. Even if the company doesn’t meet all of its goals, Ark Invest wrote in a note prior to the IPO: “The existing business segments, at their current trajectories, are plenty sufficient to justify a compelling investment case.”
It is important to keep in mind, though, that to reach even some of its goals, SpaceX must invest heavily, and as we’ve already seen, this weighs on earnings. In fact, last year it resulted in a net loss of $4.9 billion for the company. And since SpaceX’s goals — such as developing data centers in space — are so dependent on cutting-edge technology, this investing phase could go on for quite some time.
So, should you follow Cathie Wood and make SpaceX one of your main positions? Not unless you’re a very aggressive investor with an extremely diversified portfolio. And even in that case, I would aim to buy a few shares of SpaceX — and on the dip. It’s unlikely the stock will climb in one straight line.
Though SpaceX may be an exciting story, it comes with a good deal of risk — so I wouldn’t go all in on this industrial and tech giant until it reaches additional technology milestones and delivers revenue growth that makes its heavy investments worthwhile.
