Forget SpaceX Stock -- Is RocketLab the Better Buy?

Could RocketLab stock, which is already public traded, offer a better alternative to its mighty competitor?

Most investors are on the lookout for stocks that give exposure to untapped growth industries. And it's natural to pay attention to reports that Elon Musk's leading space company, SpaceX, could soon hit public markets through an initial public offering (IPO). But while this is exciting, all that glitters is not gold.

Let's dig deeper into the potential pitfalls of buying SpaceX stock when it becomes available and compare it to a much smaller alternative called RocketLab (NASDAQ: RKLB), which is already publicly traded.

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Last week, SpaceX executives began meeting with bankers to outline plans for the stock's public launch in June. And according to Reuters, they have a target valuation of $1.75 trillion. Not only will it be the largest IPO in history, but it could also have the highest amount of shares allocated to retail investors at 30%, compared to the usual 5% to 10%.

The report suggests that SpaceX's CEO, Elon Musk, wants mom-and-pop investors to have a larger ownership stake in the company relative to more-sophisticated institutional investors. However, this decision could cause the equity to trade like a meme stock, where the valuation often becomes detached from a realistic assessment of growth and earnings.

Investors should make sure to remain grounded in SpaceX's fundamentals instead of getting carried away by the excitement and hype. There are already some potential concerns that could make the stock risky.

The first and most obvious drawback of the SpaceX IPO will be its size. The company's estimated market capitalization of $1.75 trillion would make it the eighth-largest company in the world, ahead of giants like Tesla and Meta Platforms. The difference is that these other businesses allowed retail investors to get in on the ground floor of their growth journeys, while SpaceX investors will have to buy shares potentially near the top.

There are signs that the space company is maturing. Private market research firm Sacra estimates revenue grew by 18% year over year in 2025. While that's a decent number, it represents a sharp decrease from rates of 51% and 89%, respectively, in 2024 and 2023.

Image source: Getty Images.

SpaceX's pivot to generative artificial intelligence (AI) could also pose some risks. In February, the company purchased Musk's large language model (LLM) developer, xAI, in a stock deal worth $250 billion.

The AI industry is extremely competitive, and while the deal could give the combined company a new growth driver, it also runs the risk of increasing losses and burning through cash that could have otherwise gone to shareholders. The Information, atechnology newswebsite, reports that SpaceX lost $5 billion in 2025, largely due to unprofitable AI-related spending.

Investors who want exposure to the space industry without the slowing growth and generative AI risk involved in SpaceX have an alternative. RocketLab is a pure play that focuses on transporting payloads into low Earth orbit. With a market capitalization of $49 billion, it offers room for long-term growth, and it plans to ramp up its scale with the launch of a new, higher-capacity rocket called the Neutron later this year.

That said, while RocketLab looks like a better buy than SpaceX, it is not without its risks. With a price-to-sales ratio (P/S) of 74, shares are already priced for perfection. And delays in the launch could lead to a market sell-off.

Overall, investors should remember that space is still a relatively speculative and unproven industry. And whichever space stock you choose, it is best to only have moderate exposure as part of a diversified portfolio.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Rocket Lab, and Tesla. The Motley Fool has a disclosure policy.