SpaceX slides as AI spending worries overshadow early

What happened

But investors remained concerned about how long ​its profitable Starlink business could continue to bankroll costly investments ​in data centres and Nvidia chips. The company's shares fell about 12 per cent on Wednesday, dropping well below their $135 IPO price ​in less than two months since the company's blockbuster debut.

I would say that yes, those numbers are aggressive, but ⁠it's not a fantasy. Before the earnings release, investors ​largely viewed Starlink's growing cash flows as the primary source of funding for the company's AI ambitions. 7 billion it raised in its June IPO, and remained deeply free cash flow negative as it continued investing heavily in AI infrastructure. Even so, the ​company is not easing off its spending.

"The relationship between capex and revenue is unsustainable, so capex has to fall or revenue has to grow tremendously, and that is where faith in Musk's vision, engineering leadership and execution track record separates the bulls from the bears," said Drew Cupps, portfolio manager at Polen Capital, which holds a position in SpaceX.

Why it matters

"With capex expected to remain elevated and investor enthusiasm cooling, I believe the stock could remain under pressure ahead of the lock-up expiration," said Carolane de Palmas, market analyst at brokerage ActivTrades. Chief Financial Officer Bret Johnsen said the economics of those investments were improving rapidly, but also signaled that AI spending ​would remain elevated.

That stands in contrast to traditional data center investments, which typically take years to recover their upfront costs.

"Elon has continued to surprise investors on ​what innovation and technology can do, but there has always been a mismatch in terms of the ⁠time frame ‌of when that execution is going to occur," David Wagner, portfolio manager at Aptus Capital Advisors, said, referring to Musk's often-rosy ​outlook at his EV ​company Tesla that he has regularly missed. "I believe the numbers.

What to watch

⁠Johnsen said capital expenditures over the next two quarters would likely remain at levels similar to the second quarter as SpaceX continues expanding AI compute capacity, Starship production and next-generation Starlink satellites. SpaceX executives said demand for AI computing continues to outstrip supply and that they expect to end the year with more than two gigawatts of compute capacity.