SpaceX’s Post-IPO Slump Looms Over Inaugural Earnings Call

SpaceX’s IPO Rollercoaster: Navigating a $500 Billion Plunge Ahead of Earnings

Since its debut on June 12, SpaceX has experienced a dramatic decline, shedding over $500 billion in market capitalization. This steep drop has been a tough pill to swallow for retail investors who eagerly invested in Elon Musk’s ambitious rocket company. The stock has now seen four consecutive weekly losses and is trading more than 50% below its intraday peak. This mirrors the struggles faced by tech giants like Facebook following their high-profile IPOs, though SpaceX’s initial market cap decline dwarfs that of Meta’s in 2012.

This challenging backdrop sets the stage for SpaceX’s first earnings report as a public entity, scheduled for release after market close this Tuesday. The report arrives hot on the heels of Tesla’s recent earnings call, which saw Wall Street unimpressed by rising costs, negative free cash flow, and Musk’s cautious outlook on scaling the Robotaxi service. Last week’s earnings from the hyperscale tech players further intensified investor focus on artificial intelligence spending.

For SpaceX, the narrative is far more complex than for its trillion-dollar tech counterparts. A significant portion of its investment thesis hinges on Musk’s bold vision: establishing data centers in space, colonizing Mars, and developing AI services to rival industry leaders.

Crucially, unlike other megacaps, SpaceX’s current market valuation of $1.4 trillion is not underpinned by traditional financial metrics. Its trailing price-to-sales ratio hovers in the high 70s, the company is burning billions of dollars each quarter, and its debt levels are nearly double its cash reserves.

Adding to the pressure, the expiration of lock-up restrictions in the coming days could unleash a wave of new shares onto the market, offering early investors their first opportunity to divest. Meanwhile, short sellers have capitalized on the downturn, reportedly amassing approximately $8.3 billion in paper profits since the IPO, according to S3 Partners.

“It’s among the most aggressive and quickest bearish builds we have seen in a mega-cap name heading into its first earnings report post-IPO,” stated Matthew Unterman, head of research at S3 Partners.

However, not all analysts are bearish. Ben Harwood, an analyst at New Street Research, views the recent downturn as a buying opportunity. “For a long-term investor, we think this is an attractive entry point,” Harwood commented. “The growth runway is enormous, and SpaceX has one of the widest moats in the market today.” New Street initiated coverage of SpaceX with a $165 price target, significantly above its recent closing price of $108.37.

Banking on Starship: The Future of Orbital Dominance

The bullish argument for SpaceX increasingly centers on Starship, its fully reusable next-generation rocket designed to launch its advanced v3 satellites into orbit. SpaceX asserts that Starship’s success will drastically reduce the cost of space missions, enabling accelerated expansion of its Starlink constellation and satellite communications services – its only currently profitable segment.

While SpaceX’s Falcon rockets have cemented its position as the leading launch provider, the launch business itself remains a money-loser. Starship, with its vastly superior payload capacity, is expected to revolutionize the economics of space exploration, research, defense, and connectivity, potentially transforming space tourism into a viable industry.

SpaceX underscored Starship’s critical importance in its IPO prospectus. “If Starship does not achieve full reusability or rapid turnaround, we may experience higher per-launch costs, slower deployment timelines for our large-scale constellations (including our orbital AI compute program), delayed revenue growth, and increased overall capital requirements, and our brand and reputation may suffer,” the company cautioned. SpaceX also indicated its expectation for Starship to “commence payload delivery to orbit” in the latter half of this year.

The company recently conducted its 13th test flight of the approximately 400-foot-tall rocket on July 24. While the Super Heavy booster separated successfully, the landing burn for the booster experienced issues, resulting in a “hard splashdown” in the Gulf of Mexico.

Bernstein analysts identify Starship as the paramount factor in justifying SpaceX’s valuation, alongside three other key areas: semiconductor availability, regulatory processes, and compute capacity. SpaceX requires a substantial supply of processors for its orbital data centers and needs FAA approval for each Starship launch. Furthermore, as it ventures deeper into the AI space, following its merger with Musk’s xAI, the company must continuously expand its compute infrastructure amidst a resource-constrained environment. Despite these challenges, Bernstein recommends buying the stock, setting a price target of $239, believing that “the quarterly results should not matter. What will be important is the level of confidence projected by management regarding the company’s growth path.”

The AI Frontier and Compute Capacity Play

Following recent earnings reports from tech behemoths like Alphabet, Meta, Microsoft, and Amazon, SpaceX’s AI strategy and capital expenditure requirements will be under intense scrutiny. Investors will be particularly keen to understand the integration plans for Cursor, the AI-coding startup SpaceX agreed to acquire for $60 billion, a deal expected to close in the third quarter.

Meanwhile, SpaceX’s Grok chatbot has secured significant contracts, including with the U.S. Department of Defense. However, it has also courted controversy, prompting investigations and lawsuits in Europe and the U.S. due to its image editing tools enabling the creation and dissemination of deepfake content.

As Musk’s AI endeavors navigate a competitive landscape dominated by OpenAI and Anthropic, SpaceX is leveraging its data centers by leasing excess compute capacity. This strategy generates revenue while supporting the development of its AI models and services.

Just prior to its record-breaking IPO, SpaceX finalized a deal with Google valued at $920 million per month for AI compute capacity. Previously, Anthropic announced an agreement to utilize all of SpaceX’s capacity at its Colossus 1 data center in Memphis, Tennessee. Additionally, SpaceX has a separate arrangement to provide computing power to Reflection AI.

This burgeoning revenue stream is a key driver of optimism for Cantor analysts, who have set a $246 price target for the stock. “We think earnings can meaningfully alleviate some of those pressures as the company proves out hosted-compute profits, clarifies capital funding geographies, and clears its initial lockup headwinds,” the analysts noted. “We view SPCX as approaching a bottom into the print.”