Although Space Exploration Technologies (NASDAQ: SPCX) reached the $2 trillion mark shortly after its initial public offering (IPO) in June, it has fallen significantly since then and is now valued at about $1.45 trillion. Meta Platforms (NASDAQ: META) has never been a member of the $2 trillion club, peaking at $1.988 trillion. Currently, it's valued at $1.5 trillion.
Of these two, which one will be the first to get into the $2 trillion club? This is an important question, as each stock will need to rise at least 33% to get there. If either one can do that during the next year or two, it would be a worthwhile investment, as it could outperform the broader market on its way to this exclusive club, which currently has only six members.
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Meta Platforms' business is fairly simple to understand. For the most part, it's an advertising business. It operates several social media sites, including Facebook, Instagram, Threads, WhatsApp, and Messenger, and sells ads on them. This is an incredibly profitable business that generates nearly all of Meta's revenue and profits.
Meta is also heavily involved in developing AI models and spending significant money to realize its AI vision. While Meta has integrated AI across various parts of its advertising business, the market is still waiting for a meaningful AI model to come online and be useful to the public.
SpaceX is a much broader business. It owns xAI, the makers of Grok, which is actively competing against Meta's models. Additionally, xAI owns X, formerly known as Twitter, a competing social media platform. The similarities end there, as SpaceX also offers Starlink internet and other businesses that launch payloads into space.
SpaceX is a very wide business network, which is both good and bad. However, from a business standpoint, Meta is the established, dominant company in the social media segment. Still, I like the potential of the SpaceX business, so I'll give it the nod in this category, but I wouldn't argue with anyone if they named Meta the winner here either.
From a revenue growth standpoint, it isn't much of a contest. SpaceX's revenue grew 92% year over year in Q2, primarily driven by soaring AI and connectivity revenue. However, SpaceX is unprofitable and posted a $541 million loss for the quarter.
Meta is growing much more slowly, with revenue rising 28% year over year. On the flip side, Meta posted a $15.8 billion profit. However, it produced a $18.3 billion profit in the year-ago period, so this figure is shrinking.
So, which has better financials? It depends on whether you value growth or earnings. If SpaceX continues down its current trajectory, it will be profitable very quickly. Meta is already there and growing at a healthy pace, but its margins are also being squeezed.
I'm going to give this category to SpaceX, as it's heading in the right direction.
At a score of 2-0, you may think there's no way for Meta to come back, but that's not the case. This last category, valuation, can make or break an investment. And for SpaceX, it breaks it.
Although investors are still waiting for a full year of financial results to properly value the company, we can make some assumptions. Because SpaceX reports net losses, using the price-to-sales ratio is the appropriate valuation metric. Although there is no trailing-12-month data available, annualizing Q2 revenue can be a reasonable estimate. If that's done, that values SpaceX at 45 times sales. That's a very expensive valuation level and far higher than Meta.
Meta trades for a mere 6.6 times sales and 19 times forward earnings.
So, Meta trades at a lower earnings ratio than SpaceX does at a sales ratio. That's a huge difference and leads me to believe that Meta can reach $2 trillion faster than SpaceX, simply because it doesn't have a lot of optimism priced into the stock, while SpaceX has extreme optimism priced in.
Although SpaceX may have a better business and faster growth, it's just too expensive right now to justify its current valuation, making Meta the most likely company to get to $2 trillion first.
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Keithen Drury has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
SpaceX vs. Meta Platforms: Which Will Reach the $2 Trillion Club First? was originally published by The Motley Fool