Baillie Gifford US Growth Trust from the FTSE 250 made big returns on Tesla stock. It also hit the jackpot with stakes in Nvidia and SpaceX (NASDAQ:SPCX), both made in 2018 when the trust was launched.
Over the summer, however, it trimmed the Tesla position and snapped up this growth stock…
Multiple expansion opportunities
Somewhat surprisingly, it was SpaceX. The trust invested more money in the rocket giant, treating its IPO in June as a fresh investment opportunity.
In July, it wrote: “To justify investing, we needed evidence of durable businesses, credible expansion routes and an operating model that could support new revenue streams“.
The US growth trust sees ample evidence of these things in the rocket maker. Last year, SpaceX carried out close to a launch every other day, far more than competitors.
Crucially, this rapid cadence “creates manufacturing scale, operational data and repeated opportunities to improve reliability and cost. Competitors who launch only occasionally simply cannot learn as quickly“.
Much of the launch demand now comes from SpaceX’s own satellite broadband service, Starlink. Its growth opportunities span aircraft and ships to remote industrial/defence sites and rural areas. Direct-to-mobile is another huge potential market.
Baillie Gifford also sees enormous potential in the world’s largest rocket, Starship, and the commercialisation of space, as well as renting out AI data centre capacity. SpaceX is getting $26bn in annual revenue from Google and Anthropic alone.
Environmental backlash
More speculatively, there’s the potential to put AI computing infrastructure into orbit. However, the trust sees this as “optionality rather than the foundation of our valuation“.
That’s because there’s a lot of capital expenditure and execution risk associated with space-based data centres. Indeed, some argue they’re unfeasible due to the laws of thermodynamics.
Note however that there’s a growing backlash against terrestrial data centres due to the sheer amount of energy and water they use. The UK’s Green Party has recently called for a freeze on building new ones.
If they work then, orbital AI satellites powered by solar could eventually solve some of these constraints. As such, Google’s Project Suncatcher is already working on them, with hopes to one day scale machine learning compute in space.
There’s no doubt to me that a decade or so away, we’ll be viewing [orbital computing] as a more normal way to build data centres.
Alphabet CEO Sundar Pichai.
Who would provide the heavy-lift launches for Google? Presumably SpaceX.
What could go wrong?
Of course, a lot could go awry between now and the 2030s. SpaceX’s huge investments in AI might not pay off while regulatory/engineering setbacks could put severe pressure on the share price.
Finally, SpaceX is far from cheap. Based on current forecasts, the stock’s forward-looking price-to-earnings ratio (for 2028) is in the mid-to-high 30’s. This could even prove to be overly optimistic if growth underwhelms.
Given these risks, is the stock worth considering? I think so. Baillie Gifford US Growth Trust estimates that SpaceX is “at least 10 years and 600 launches ahead of the competition“.
I’ve been buying its shares recently, with a decade-long investing horizon. But to minimise risk, it’s just one of many growth stocks in my portfolio.
Should you invest £5,000 in SpaceX right now?
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Ben McPoland owns shares in SpaceX.
This story originally appeared on Motley Fool
