The tech giant’s stake in SpaceX might significantly elevate its stock later this year.
Public companies have the option to invest their funds into other businesses. A notable example is Berkshire Hathaway (BRK.A +0.26%) (BRK.B +0.14%), which was led by the iconic Warren Buffett. He built his massive conglomerate by acquiring entire companies as well as gradually purchasing stock in others, using the generated cash flow for further expansion.
A less well-known example of this investment strategy is Alphabet (GOOG 0.85%) (Google 0.83%), which has made several substantial investments in various businesses. Most of Alphabet’s investment portfolio requires less active management compared to its core operations. Still, one such investment from a few years ago could soon generate billions of dollars in revenue.
Right now, I think there’s a compelling reason to consider buying Alphabet stock, especially since the company it invested in might go public this year.
Alphabet’s SpaceX investment carries significant promise
There’s talk of SpaceX potentially going public in 2026 to unlock some of that value for future ventures. In a recent private investment round, shares were valued at around $800 billion, but typically, such funding rounds don’t fully reflect a company’s true value since insiders and private equity often purchase at discounted rates. Interestingly, SpaceX’s management appears to be aiming for a $1.5 trillion valuation for its IPO.
Today’s changes
(-0.83%) $-2.78
current price
$330.00
Key data points
Market capitalization
$4.0 trillion
daily range
$327.70 – $334.65
52 week range
$140.53 – $340.49
volume
40M
average volume
36M
gross profit
59.18%
dividend yield
0.25%
A public offering of this magnitude is nearly unheard of and could test the limits of what the public market can accommodate. If SpaceX becomes profitable, it might join other major companies in the S&P500 (^GSPC 0.06%). Regardless of the outcome, Alphabet stands to gain tremendously.
If the market assesses SpaceX at that $1.5 trillion mark, Alphabet’s 7% stake purchased for $900 million would soar to approximately $105 billion. With the sky-high costs associated with constructing and equipping data centers, Alphabet could potentially sell its shares in the public market and utilize the funds to enhance their generative AI initiatives.
Of course, there are a lot of uncertainties here. Nobody can predict what will happen by 2026. Yet, if SpaceX does go public and Alphabet cashes out, it could be a brilliant strategy for the company.
Utilizing proceeds from the sale to bolster AI investment would be wise.
Having held a stake in SpaceX for a decade, Alphabet has certainly done well. But it’s also a matter of evaluating whether it’s beneficial to continue holding onto it. Which would yield a higher return on investment: artificial intelligence infrastructure or SpaceX? That’s a tough choice for Alphabet’s executives. Both sides have their merits. Personally, I lean towards AI as being a more enticing short-term investment.
SpaceX’s anticipated IPO in 2026 might create a buzz that many investors have never experienced, and this could have widespread implications in the market. But I genuinely believe Alphabet will benefit from SpaceX’s public offering no matter what it decides to do with its shares. This hidden advantage is just one of the reasons I see Alphabet as a solid investment at the moment. They’re at the forefront of generative AI, cloud computing, self-driving technology with Waymo, and much more. SpaceX is only one of the many fruitful investments that has proved beneficial for Alphabet and its shareholders.
