Why SpaceX stock is falling despite strong revenue growth

Shares of SpaceX tumbled on Wednesday despite reporting strong revenue growth in its first public quarterly earnings report, as investors questioned the rocket maker’s accelerating investment in artificial intelligence.

SpaceX shares tumbled $10.06, or 8%, to $115.27 in early afternoon trading on Wednesday. 

Investors are worried that the company’s massive investments in artificial intelligence won’t be enough to justify SpaceX’s $1.5 trillion valuation. SpaceX’s earnings report on Tuesday disclosed $15.8 billion in AI-related capital expenditures during the second quarter, more than double the amount it spent in the first quarter.

“The entire market is beginning to suspect that the extraordinary spend on AI might not work out for every firm,” David Trainer, CEO of New Constructs, an investment research firm, told CBS News in an email. “They cannot all be winners, yet they are all spending as if they will be.”

Investors looked past the company’s strong quarterly report to instead focus on whether SpaceX can deliver on its ambitious agenda, which includes sending data centers into space. 

“Elon Musk has a history of overpromising, so investors took some of the optimistic forecasts with a grain of salt,” Jay Ritter, an IPO expert and professor at the University of Florida’s Warrington College of Business, told CBS News in an email.

AI-related investments accounted for 86% of the company’s overall CapEx spending from April to June, totaling $18.4 billion.

“We’re building AI compute capacity at scale faster than anyone else, we believe, and we’re significantly improving our AI models, most notably with the release of Grok 4.5 last month,” Musk said on Wednesday’s earnings call. 

The company’s second-quarter revenue of $7.8 billion exceeded analysts’ forecasts, while it narrowed its loss to $541 million from $1 billion a year earlier.

“The good news is that revenue and earnings for the quarter were above expectations, and that the company was optimistic about its ability to launch orbital data centers as early as next year,” Ritter said. “But the bad news is that the company is spending lots of cash on Earth-based data centers, a business that has a lot of competition.”

The company’s biggest source of revenue is its satellite division, home to Starlink. However, its AI segment has the potential to drive SpaceX’s valuation in the future, Nicolas Owens, an equity analyst at Morningstar who covers SpaceX, said in a Wednesday analysis. 

Despite the stock’s decline, Morningstar still views SpaceX shares as overvalued, he noted.

SpaceX stock could face further downward pressure on Thursday when up to 911.5 million shares become eligible for sale as a lockup period expires, potentially flooding the market with new shares. 

“The lockup expiration does not mean every insider or early investor will sell, but it does increase the potential supply of shares coming to market, which can create near-term pressure on the stock,” Paul Karger, co-founder and managing partner at private investment firm TwinFocus, said in an email.