SpaceX (NASDAQ: SPCX) is a great company to follow and love, being well-positioned in the global race to commercialize space. It provides numerous opportunities for humanity and investors, but now may not be the best time to buy the stock.
Still suffering from its post-IPO malaise, the market shows signs of a bottom but has yet to confirm it. In the current scenario, SPCX is just as likely to continue its downtrend as to recover, and there is more impetus to sell than to buy.
Critical details from the initial earnings report include cash burn: SpaceX literally fuels its rockets with cash and is firing more rockets at a faster pace each quarter. In this environment, short sellers are a risk that cannot be ignored, and early signs suggest they are leaning into the trade.
MarketBeat’s data reveal that short interest as of July 15 was low but has risen steadily since the IPO and is on track to continue rising until another catalyst emerges.
SpaceX Has Great Quarter, But Cash Burn Still a Problem
SpaceX had a great quarter with growth across all segments. Systemwide, revenue increased by 92% year-over-year to outpace the consensus by nearly a billion dollars. The $7.8 billion reported was 1,300 basis points better than expected, underpinned by strength in AI.
AI grew by more than 200% and Connectivity by 66%, making them the two largest and most important segments. At nearly 88% of net revenue, they make the "Space" in SpaceX almost an afterthought, one that is sucking profits out of the other two segments.
Margin details highlight the importance of Connectivity, the single largest segment, to the near-term outlook and AI to the long term. Connectivity, which includes Starlink, is the only profitable segment, and its profitability has so far been insufficient to offset losses in the others.
The good news is that the AI segment losses are tied to data center capacity that is coming online over the next few months and quarters. It will at least begin generating profits within the foreseeable future, while the Space segment may burn cash indefinitely.
Guidance was optimistic, but presents a hurdle for the market. The company says it's on track to hit a $100 billion annual run rate by year-end, and $1 trillion in annual revenue by 2030. These guidance updates signal that the capacity ramp is progressing smoothly, but now the company has to hit those targets. The risk is that targets won’t be met and profits won't impress, given the high expectations and ongoing cash burn. CFO Bret Johnson says capital expenditures (CapEx) will run at a similarly high pace in upcoming quarters, well above what market forecasts had initially predicted.
Analyst Optimism May Not Be Enough to Support Price Action
Analysts are optimistic about SpaceX’s future and show high conviction, with 39 analysts tracked. They rate the stock as a Moderate Buy with 72% Buy-side bias and triple-digit upside potential, but may begin to temper their outlook, given the increased expectation for cash burn.
In this scenario, a downshift in analyst sentiment could send the SPCX market into freefall, with the stock not recovering until earnings traction is regained. Institutions are likewise a risk, as they may sit on the sidelines until SpaceX offers them an incentive to buy, and spending money isn’t the way to do it.
The Risks SpaceX Bulls Are Underestimating
SpaceX’s biggest risk lies in its valuation. Even with the post-IPO sell-off, the company is valued at over $1.4 trillion, with the market pricing in robust growth. Assuming SpaceX can execute its strategy, scale launches, and drive margins, the stock trades at pennies on the dollar relative to 2035’s consensus estimate. However, the forecast is predicated on flawless execution, leaving the stock at precariously high valuations today. At recent prices, the stock could shed another 50% and still be highly valued. There is upside potential for this market, but the risks far outweigh the rewards.
What SpaceX bulls underestimate comes down to a handful of costs and risks: the immense expense of space development, the company's parallel AI buildout, the drag that thin profitability puts on market dynamics, and the insider lockups set to expire on a staggered schedule. Those lockups are the sharpest near-term risk—they open the door to billions in insider sales with the first tranche unlocking alongside the Q2 earnings report.
Additionally, uncertain profitability is a barrier for institutional ownership, specifically indices such as the S&P 500, which influence trillions in underlying investment dollars. S&P Dow Jones denied the company early approval, choosing instead to enforce the 12-month listing and GAAP profitability requirements.
The article "SpaceX: Love the Company, But the Stock Is a Harder Call" first appeared on MarketBeat.
