SpaceX’s results are out, and the headlines are compelling: a 92% increase in revenue in Q2 compared to a year earlier. Revenues were $7.81bn, beating estimates of $6.93bn. The company posted a net loss of $541mn for Q2, which is nearly half the loss from a year ago when it hit $1bn.
The company posted revenue beats for all the main sectors of the business. Space posted revenues of $962mn, connectivity was $4.29bn, while AI posted revenues of $2.56bn, vs. $2.18bn expected.
The company also said that it is on target to reach $100 bn of revenue by the end of this year, after signing a number for new deals in recent months. This includes $6.7bn of new cloud computing revenue for Q3.
Capex concerns hits the share price
Even with these strong numbers, the share price is down more than 8% in post-market trading. Investors are concerned about the massive surge in capex spending. It rose sixfold to $18.37bn, exceeding estimates of $13.22bn. The concern for investors is how fast expenditure growth is outpacing revenue growth. SpaceX’s AI investment was $15.83bn last quarter, and for the first 6 months of the year, AI investments amounted to $23.55bn.
While SpaceX’s expenditure numbers are huge, the longer-term stock market reaction will depend on whether this rate of investment is affordable and worthwhile? The company’s cash pile has surged due to its recent IPO. It now has cash of $93.5bn, up from $24.7bn at the end of Q1. However, the company has increased its debt and leasing agreements to $36.8bn. Thus, if SpaceX continues to repeat AI spend at the Q2 rate, its healthy cash flow position could soon deteriorate.
Starlink not enough to prop up the stock
There were some other pockets of good news in these results. Starlink, the most profitable part of SpaceX, boosted subscriber growth to 12mn last quarter, which is double what it was a year ago. However, average revenue per user was much lower than a year ago, at $66 compared to $85. Starlink is now a volume game for SpaceX, and going forward the company will need to see a large pick up in subscriber growth to justify the reduction in revenue per user.
The company was very bullish about the future of Starlink and its potential to deliver the majority of the world’s internet in the future. While Starlink is a profitable part of SpaceX, it is not the part that is eating up most of the capex spend. Thus, Starlink alone cannot prop up SpaceX’s share price these days.
The company confirmed that advertising revenue fell 14% compared to a year ago, which it blamed on a new advertising system.
The future is AI, powered by Nvidia
Elon Musk also announced that all of SpaceX’s future AI infrastructure buildout will be fueled by Nvidia chips exclusively. This suggests that Musk has secured these key components for SpaceX’s AI data centres at the same time as there is a supply crunch. Thus, a shortage of chips should not impact SpaceX, or limit its ambitions to provide AI compute for the market.
This news is good for Nvidia’s share price, which is higher by 2% on Tuesday night.
The company also said that return on its AI investment is taking less than a year, and that they can deploy capital in an incredibly efficient way. This should be good news, but it has not buoyed the share price.
The market reaction, and where the share price goes next
Ahead of these results, SpaceX’s share price surged, rising 9% on Tuesday to more than $125. This was the biggest daily rally since June 15th, just after its IPO. However, most of these gains have been eroded and the share price is currently below $116.
Overall, these results had some strong elements, but so far, the market is not convinced. When it comes to Elon Musk’s companies, you must believe his vision. However, Musk’s vision will collide with the end of another lock-in period for SpaceX pre-IPO investors on 6th August. The decline in the share price on the back of these results could be the market pre-empting a surge in supply, as long-term investors rush to the exit.
The speed of the decline in the post-market on Tuesday evening is concerning. If the share price stays below $115 on Wednesday, then it opens the door to a steeper fall below last week’s lows of $108, if we see a surge of SpaceX shares hit the market in the next two days.
