SpaceX shares plummet almost 13% after earnings release and spending on AI

The rocket and artificial intelligence maker surpassed analysts' expectations in its debut earnings report, released on Tuesday (4), by recording quarterly revenue of US$7.8 billion, well above analysts' estimate of US$6.82 billion and up 92% compared to the previous year. The company recorded a net loss of around US$541 million, a better result than the estimate of US$2.12 billion.

But SpaceX shares fell as much as 12.86% to $109.21 this Wednesday after the company reported capital expenditures of nearly $16 billion on AI, double the previous quarter and well above Wall Street expectations. The company said spending would remain at current levels for at least two more quarters.

SpaceX's shares have depreciated by almost 40% compared to their debut price on June 12 -US$ 175- and may come under more pressure with the end of the lock-up period after the IPO (initial public offering of shares), starting on Thursday (6). Another Musk company, Tesla, was also facing declines in pre-market trading, with a 1% loss.

"This is the upshot of the narrative of this entire earnings season. SpaceX has beaten analyst expectations for revenue, but AI spending is spiraling out of control, with no signs of slowing in the near term," said Nic Puckrin, multi-asset class analyst and founder of Coin Bureau.

The earnings report was released after SpaceX raised $86 billion in a historic IPO in June, buoyed by expectations that the company will generate meteoric revenue growth in the coming years.

SpaceX shares initially soared, but have lost nearly half their value since peaking at $225 the week after the IPO.

Musk told investors during an earnings call that the group planned to increase its computing capacity from 2 gigawatts at the end of this year to "closer to 10 GW [than 5 GW]" by the end of 2027.

Each gigawatt of new capacity costs tens of billions of dollars to develop, with most of that spent on chips. Musk announced that he would rely exclusively on Nvidia hardware in future infrastructure development.

At the upper limit of Musk's estimate, the company's data centers would consume, by the end of 2027, as much energy as New York City at the height of summer.

Musk, whose commercial success at Tesla and SpaceX came from developing hardware, is betting that his company can take advantage of the insatiable demand for computing power.

Bret Johnsen, SpaceX's chief financial officer, told investors that the group would generate more than $100 billion in annual recurring revenue by the end of the year, with cloud services accounting for most of the growth.

"I think the capital expenditure number in the AI ??segment hasn't really excited the investment community," commented Melissa Otto, global head of research for Visible Alpha at S&P Global. "It's ambitious."

SpaceX's AI revenue more than tripled from the previous quarter to $2.56 billion, with most of it coming from deals to lease data center capacity to rival AI groups, including Anthropic and Google.

This approach boosted SpaceX's revenues in the short term while limiting its ability to train and operate its own competitive AI models.

Dec Mullarkey, managing director of SLC Management, said SpaceX's strategy of leasing data centers could hurt it. "The company's margins will be limited if it is primarily a cloud company," he said.

Maintaining SpaceX's $1.65 trillion market value also depends on Musk achieving ambitious goals, such as reaching Mars with reusable rockets, putting data centers into orbit and playing a key role in the development of AI.

Goldman Sachs, one of the coordinators of SpaceX's bid, expects the company's AI revenue to increase 100-fold by 2030. Musk said on Tuesday that the company could reach $1 trillion in revenue by the end of the decade.

During the earnings call, Musk said that SpaceX had advanced its first generation of orbital data centers, dubbed Starmind AI-1. "This is not some distant, remote future thing. We hope to start rolling them out next year."

The latest series of Grok AI models are being trained with data from SpaceX, which Musk says would give his company's tools an engineering edge.

Musk also argued that the potential of the group's Starlink unit - which provides internet via satellite - was "underestimated".

SPACEX EXCEEDS EXPECTATIONS IN ITS FIRST RESULTS

Some traders have been placing bets against SpaceX shares in recent weeks. Short positions in the company increased to the equivalent of 220 million shares, or around 34% of shares in free trading, according to data provider S3 Partners.

Analysts at Deutsche Bank said that the end, on Thursday, of the initial period of restriction on the sale of shares by employees put pressure on the price of SpaceX shares. The German bank also said "lower-than-expected" purchases by passive index-tracking funds were hurting SpaceX shares after the company was included in the Nasdaq 100 index last month.

Investors are also weighing the likelihood of Musk merging SpaceX with Tesla, after having previously consolidated parts of his business empire.

Musk stated during Tesla's earnings call last month that the electric car maker