Key insights
- SpaceX's upcoming IPO aims to raise approximately $75 billion, with a significant portion earmarked for its AI segment due to intense competition and the nascent stage of its AI development. The company's prospectus highlights "competition" over 180 times, particularly concerning its AI business, which represents a substantial part of its total addressable market. The substantial capital raised will likely fuel AI development, potentially impacting the broader AI sector and related technology investments.
The SpaceX initial public offering (IPO) is now underway. And no matter where the share price heads in the coming weeks, months, and years, one thing is for certain: SpaceX will be deploying its new capital at breakneck speed.
In total, SpaceX's projected IPO proceeds should come in around $75 billion, though underwriter allotments and other small additions may push this figure even higher.
In the company's 370-page IPO prospectus, the word "competition" appears more than 180 times. This high frequency is partly due to boilerplate legal statements. But there's also quite a bit of commentary regarding how stiff competition for SpaceX's core markets is expected to be. SpaceX seems particularly concerned with rising competition in its artificial intelligence (AI) segment.
"[O]ur AI business is subject to challenges inherent in a nascent, highly competitive, capital intensive and rapidly changing industry," the IPO prospectus warns. These concerns are even more relevant when investors understand just how early-stage SpaceX's AI efforts are. Even the company admits to this. "Our AI business is in a relatively early stage," the IPO prospectus stresses. "[I]ts business strategy is still developing, and it will require significant capital expenditures to fund compute, infrastructure and power generation, model training, and product development."
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Rising competition in the AI industry is of particular importance for SpaceX, considering AI opportunities alone account for $26.5 trillion of the company's claimed $28.5 trillion total addressable market. Remaining competitive in this area, therefore, becomes critical for SpaceX's short- and long-term success. The company's new capital raised through its IPO will almost certainly be spent disproportionately on AI development.
How exactly will SpaceX deploy its cash on its AI efforts? If you follow this line of questioning, one AI stock becomes an obvious buy.
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From SpaceX's IPO prospectus, we can conclude two things. First, AI is the company's biggest growth opportunity. Second, SpaceX sees competition in the AI space accelerating. Combined, this likely means SpaceX will deploy its IPO capital to scale its AI business as fast as possible. And there's one obvious thing every AI company needs to scale: GPUs.
"GPUs are important for AI because they can accelerate the training and inference processes. This allows AI models to be developed and deployed more quickly and efficiently than using CPUs," observes a report from Alphabet, the parent company of Google. "As AI models become more complex, the need for GPUs will only increase."
Many companies manufacture GPUs. Which company will SpaceX buy its GPUs from? The answer is obvious: Nvidia (NVDA +0.17%).
Nvidia's chips are widely regarded as the best-performing commercially available GPUs on the planet for AI applications. The company holds an estimated 85% market share.
SpaceX is already a huge buyer of Nvidia chips. Colossus 1 -- a SpaceX facility that the company believes is "one of the world's largest and fastest-deployed AI supercomputers" -- has more than 220,000 Nvidia GPUs at its core. That includes "dense deployments" of Nvidia's H100 and H200 chips, plus hoards of next-generation GB200 accelerators.
SpaceX CEO Elon Musk claims to be designing new GPUs that can outperform Nvidia's chips at a fraction of the cost. But many industry experts are skeptical. At minimum, realizing its own goal of producing GPUs internally will take years to fully scale. In the meantime, even Musk admits that his companies -- SpaceX, Tesla, and xAI -- will continue to buy Nvidia's products at scale for the foreseeable future.
In short, Nvidia should be one of the primary recipients of SpaceX's ramped-up capital spending. By 2031, some experts believe SpaceX will spend more than $600 billion annually to scale its AI infrastructure. Perhaps the company will have its own GPU manufacturing facilities up and running by then. But for the next several years, the company will likely have little choice but to buy massive amounts of Nvidia GPUs.
To buy SpaceX stock during or after the IPO, you must be very bullish on AI. And if you're bullish on AI, Nvidia should be a core holding.