1 Interesting Reason Why SpaceX Bought Cursor, and How It'll Impact Investors

Space Exploration Technologies (SPCX 3.44%) is acquiring Anysphere, the maker of the popular AI coding tool Cursor, for $60 billion in an all-stock deal. Most headlines focused on the obvious reason for the deal: Elon Musk wants SpaceX subsidiary xAI to compete with OpenAI and Anthropic. That is true, but there's a bit more to the story.

The acquisition of Anysphere also gives SpaceX billions in immediate revenue. Cursor is one of the fastest-growing software companies ever, with annual revenue allegedly exceeding $4 billion. This matters because since SpaceX's IPO, the company is now valued at more than $2 trillion, but its annual revenue is less than $20 billion. An enterprise priced at this level desperately needs to generate cash within its businesses to justify the valuation over the long term.

The fastest way for SpaceX to add revenue is through acquisitions. The rocket-launching segment will take time to grow, but a rapidly growing business like Cursor will provide the buffer SpaceX needs.

For investors worried about a post-IPO plunge in stock price, this acquisition is welcome news. There's still a high probability that SpaceX's stock will cool off, but at least the gap between actual results and its astronomical valuation has closed slightly with this deal. Investing in newly public companies is exciting, but research shows that IPOs underperform the market for the first three to five years. This is yet another reason why investors should plan to hold shares for at least five years.