Space Exploration Technologies (NASDAQ: SPCX) stock is under fire. After a sharp correction in recent weeks, shares of the space stock are now 22% below their IPO price set in June.
The slide mirrors what is happening across other AI stocks. The Global X Artificial Intelligence & Technology ETF (NASDAQ: AIQ), for example, has shed more than 15% of its value over the past 30 days.
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Importantly, SpaceX’s long-term growth opportunities remain intact. But for shares to rebound, at least one of two things needs to happen.
1. AI enthusiasm must return for SpaceX stock to rebound
The share price action for SpaceX won’t improve until enthusiasm returns to AI stocks. While SpaceX has exposure to rocket launches and satellites, AI comprises the vast majority of the company’s long-term growth potential. An astounding $26.5 trillion of the company’s claimed $28.5 trillion total addressable market relies exclusively on AI.
To be clear, the market still seems to be pricing in heavy growth for AI adoption. What’s in question right now is just how quickly AI companies can scale data center infrastructure to meet that demand.
“AI demand remains strong,” observes research from Barclays. “What the market is questioning is funding, as hyperscalers keep lifting capex while free cash flow evaporates.”
SpaceX is in a poor position in this regard. Many of its big tech competitors have mature business segments with strong cash flow generation. That will allow them to invest in capital-intensive AI initiatives even if outside capital dries up. Since it’s currently unprofitable, SpaceX must continue to rely on outside capital not only to grow but also to survive.
If sentiment toward AI stocks continues to deteriorate, expect SpaceX to remain on the chopping block.
2. SpaceX must execute on high-risk ventures
SpaceX’s current valuation is tough to justify based on launch services and Starlink potential alone. The company must execute on its AI roadmap to justify a valuation above $1 trillion.
To achieve its claimed AI potential, SpaceX will likely need to pursue several speculative yet high-potential opportunities. This includes successfully commercializing its Starship rocket, which would become the tallest, largest, and most powerful rocket ever built. Then, the company must use that rocket to economically scale not only its Starlink satellite network but also orbital data centers, which face steep physics hurdles. Finally, SpaceX must also scale its terrestrial data center infrastructure while successfully selling that compute space to customers.
As previously discussed, all of these ventures require substantial capital to pursue. Access to capital is exactly what the market is concerned with right now. That adds even more risk to the risks inherent in pursuing such bold, pioneering initiatives. So while SpaceX stock could eventually rebound due to internal merits, realizing those catalysts is becoming more difficult in today’s market.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends Space Exploration Technologies. The Motley Fool has a disclosure policy.
