Elon Musk has done some incredible things over the years.

He’s helped revolutionize the auto industry, made reusable rockets a reality and built the world’s largest satellite internet network.

But last week, he showed off something straight out of a science-fiction movie.

A flying car.

On October 15, Musk unveiled a prototype of Tesla’s next-generation Roadster at a SpaceX testing facility in Texas.

The electric sports car raced up a curved ramp, drove upside down, then launched into the air before flipping over and landing safely on its wheels.

The secret? A combination of Tesla’s engineering and SpaceX’s rocket technology. A special suction system kept the Roadster attached to the ramp, while powerful thrusters released bursts of compressed gas to help it maneuver through the air and land safely.

So, was this a bold leap forward in automotive technology? Or was it an elaborate marketing stunt?

Yes.

If you’ve followed Elon Musk for any length of time, you know that’s often how things go.

He’s famous for making ambitious promises and generating enormous excitement around technologies that sometimes take years longer than expected to reach consumers.

Consider the Roadster itself. Musk first unveiled the second-generation model back in 2017, with production originally expected in 2020.

Here we are, nine years later, and it’s still not available to buy.

But there’s another side to that story.

Whatever you think of Musk’s timelines, you can’t deny that Musk has a habit of pushing innovation forward. And last week’s demonstration showed what can happen when Musk combines Tesla’s engineering expertise with the rocket technology developed by Space Exploration Technologies Corp. (SPCX).

Interestingly, the two companies may soon become even more closely connected.

Of course, before we start speculating about what the future might hold, I think it’s important to take a closer look at how both businesses are performing today.

So, in today’s Market 360, we’ll break down this week’s quarterly results from SpaceX and Tesla, Inc. (TSLA), discuss what a potential merger could mean – and talk about how investors can benefit from Musk’s ambitious plans without having to ride the roller coaster that often comes with owning his companies.

SpaceX’s Earnings Blast Past Expectations

Let’s start with SpaceX, which reported its third-quarter results on Tuesday. And the results were nothing short of spectacular.

Third-quarter revenue soared 161% year-over-year to $14.6 billion, easily topping analysts’ expectations for $12.8 billion.

Even better, SpaceX reported its first quarterly profit since going public earlier this year. Third-quarter earnings came in at $4.4 billion, or $0.35 per share, compared with a loss of $1.1 billion, or $0.36 per share, in the same quarter a year ago.

That also crushed analysts’ expectations for earnings of just $0.13 per share, resulting in a whopping 169.2% earnings surprise!

Now, what really caught my attention was the incredible growth in SpaceX’s artificial intelligence business.

The company’s AI division generated $7.6 billion in revenue during the quarter. That represents a whopping 830% increase from a year ago.

In fact, AI now accounts for more than half of SpaceX’s total revenue. So, it’s quickly becoming one of the company’s biggest growth engines.

And SpaceX’s Starlink satellite internet business isn’t slowing down, either.

Revenue from its Connectivity segment, which includes Starlink satellites and internet service, climbed 69% year-over-year to $5.2 billion, thanks to strong demand from consumers, businesses and government customers.

And Musk has even bigger ambitions for Starlink. Bloomberg reported Thursday that SpaceX is seeking access to at least 80,000 cell sites across the U.S. as it explores becoming the nation’s fourth major wireless carrier.

Clearly, SpaceX has a lot of momentum behind it right now. But there’s another number that caught my attention: $19.6 billion.

That’s how much SpaceX spent on capital expenditures in the third quarter alone, nearly three times what it spent a year ago. And roughly $16.4 billion of that went toward its AI business.

That’s an enormous investment. But it also shows just how aggressively the company is positioning itself for future growth.

The bottom line: SpaceX is no longer just a rocket company. It’s becoming a major force in the AI revolution, and its latest earnings results show just how quickly that business is growing. But it also underscores how much capital SpaceX needs to support its ambitious growth plans.

Tesla’s Earnings Beat Comes With a Catch

Now, let’s turn to Tesla, which reported its third-quarter results after the closing bell on Wednesday.

Unlike SpaceX, Tesla’s latest results were a bit of a mixed bag. But the company did manage to surprise Wall Street.

Third-quarter revenue came in at $28.05 billion, essentially flat compared to the same quarter a year ago. That also fell slightly short of analysts’ expectations for $28.13 billion.

Meanwhile, adjusted earnings slipped 4% year-over-year to $0.48 per share, compared with $0.50 per share, a year ago. The good news is that earnings still topped analysts’ expectations for $0.44 per share, resulting in a 9.1% earnings surprise.

Now, the real bright spot was Tesla’s cash flow.

The company generated $1.53 billion in positive free cash flow during the third quarter. That was a pleasant surprise, considering analysts expected Tesla to burn through $4.92 billion in cash. However, free cash flow was still down 62% from a year ago.

Tesla also managed to keep its capital expenditures below Wall Street’s estimates. The company spent $4.73 billion during the quarter, compared with forecasts for nearly $8 billion.

That’s still more than double what Tesla spent a year ago. But spending came in well below Wall Street’s expectations. In fact, Tesla now expects to spend about $20 billion in capital expenditures this year, down from its previous forecast for more than $25 billion.

Of course, Musk still has some big plans for Tesla’s AI business.

The company recently started production of its Optimus humanoid robots at its Fremont factory. And active Full Self-Driving subscriptions surged 67% year-over-year to 1.74 million during the quarter.

That’s encouraging progress, especially as Tesla looks to expand beyond its traditional electric vehicle business.

There are some encouraging signs here, especially Tesla’s improving automotive margins and stronger-than-expected cash flow. But with revenue essentially flat and profits declining, the company still has plenty to prove.

But investors clearly wanted more. Tesla shares fell by about 3% Thursday as Wall Street weighed the company’s weaker profits against its ambitious plans for robotics and autonomous driving.

The Bigger Opportunity Behind Musk’s AI Ambitions

This brings me back to the possibility of SpaceX and Tesla joining forces.

During SpaceX’s earnings call Tuesday, Musk confirmed that both companies have formed independent committees to explore a potential merger. While no agreement has been reached, Musk said he sees real advantages to combining the businesses.

It’s easy to understand why.

SpaceX has already become a major force in AI, while Tesla continues to invest in autonomous driving and robotics.

The two companies are already working together on Terafab, an ambitious semiconductor manufacturing project in Texas designed to produce advanced AI chips for everything from Tesla’s humanoid robots to SpaceX’s space-based data centers. Musk said Tuesday that he hopes to begin large-scale production by 2028.

By combining their technologies and resources, the two companies could give Musk a significant advantage in the race to develop the next generation of AI.

But whether they merge or not, I believe Musk’s biggest breakthroughs are still ahead of us.

And the opportunities could extend far beyond his companies.

Folks, we’re still in the early stages of this revolution. As AI becomes more powerful, it could help scientists develop new treatments for deadly diseases, unlock advances in energy and quantum computing, transform space exploration and change how we live and work every day.

Of course, making all this possible will require enormous investments in computing power, advanced chips, energy and other essential infrastructure.

And that’s where I think investors should be looking.

You see, I’ve never been one to chase a stock simply because its founder has an exciting vision. I want to see strong sales growth, accelerating earnings and improving fundamentals. That’s why I’ve generally preferred other opportunities over Tesla and SpaceX.

But those billions Musk is spending aren’t simply disappearing. They’re flowing to the companies supplying the technology and infrastructure needed to bring his vision to life.

And I believe some of those companies offer a much more attractive way to invest in the next phase of the AI Revolution.

In fact, I’ve been studying one of Musk’s most ambitious AI initiatives, and I’ve identified three companies outside his business empire that could be among the biggest beneficiaries.

That’s why I’ve put together a special video presentation to share what I’ve uncovered.

During this exclusive briefing, I’ll also show you the technology in action so you can see why I’m so excited about its potential. I’ll also explain why I believe it could trigger a new wave of investment opportunities – and reveal details about the three stocks positioned to benefit.

You can watch my special presentation right here.

Sincerely,

Louis Navellier

Editor, Market 360

The post Tesla and SpaceX Could Merge. But Here’s the Bigger Opportunity… appeared first on InvestorPlace.

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