SpaceX Falls 10% as AI Spending Weighs on Outlook

SpaceX shares fell more than 10% in early trading on Aug. 5 despite reporting quarterly results that exceeded Wall Street expectations, as investors focused on the company's accelerating spending on artificial intelligence infrastructure and the upcoming release of hundreds of millions of IPO lockup shares. Although analysts broadly maintained bullish ratings and raised long-term revenue forecasts, concerns over capital expenditures, cash flow timing, and increased share supply outweighed stronger-than-expected earnings.

The company reported quarterly revenue of US$7.8 billion, surpassing consensus estimates, while capital expenditures reached US$18.4 billion, primarily allocated to AI infrastructure. The level of investment, which exceeded quarterly revenue by more than twofold, became the central issue for investors assessing when those expenditures will generate cash flow and profitability.

The decline reflects a broader shift in investor priorities. Rather than rewarding aggressive AI investment strategies, the market is increasingly demanding evidence that spending will translate into recurring earnings and free cash flow within a reasonable timeframe.

Morgan Stanley maintained its US$300 price target for SpaceX, noting that "higher estimates are offset by higher capital expenditures." Although the investment bank acknowledged stronger operating performance, it concluded that increased spending balances the improvement in financial expectations.

Deutsche Bank also raised its forecasts for 2026 and 2027 after concluding that SpaceX's growth will be "much stronger than we previously anticipated," driven primarily by its AI business. However, the bank reduced its price target from US$255 to US$235, citing expectations for a sharper increase in capital spending while maintaining its buy recommendation.

AI investment Dominates Investor Concerns

According to Ruben Dalfovo, investment strategist, Saxo Bank,  investor attention has shifted from revenue growth to cash generation. "Investors are no longer asking only whether demand is growing. They are asking who pays for it, when spending turns into revenue and how much cash remains afterward," Dalfovo said in an interview with Bloomberg.

He added that "SpaceX spent more than twice its quarterly revenue building for the future. Investors questioned the timeline, not the ambition."

The comments summarize the market's reaction following earnings. While analysts agreed that operational performance exceeded expectations, investors focused on the uncertainty surrounding returns on the company's record investment program.

Despite the market reaction, Wall Street analysts continued to express confidence in the company's operating performance.

John Godyn, analyst, Citi, said "second-quarter results were uniformly positive," noting that SpaceX exceeded expectations for revenue, adjusted operating profit and profitability across its three primary businesses: space operations, connectivity and artificial intelligence.

Citi also highlighted management's updated long-term outlook. The company moved forward its target of reaching approximately US$1 trillion in annual revenue from 2031 to 2030 and indicated that it could "potentially achieve it as early as 2029," well ahead of current market expectations.

Artificial Intelligence Drives Earnings Growth

Analysts identified the AI business as the largest contributor to quarterly performance.

Citi estimated that adjusted operating profit from the AI division exceeded its forecast by nearly US$1.5 billion. The bank also stated that "the payback period for AI capital investment is less than one year," supported by continued imbalance between computing demand and available capacity.

Brian Dobson and Greg Pendy, analysts, Clear Street, maintained a buy rating, arguing that "the market is undervaluing the capacity the company financed before contracted demand existed."

The analysts also noted that the AI business achieved positive adjusted operating profit earlier than expected. In addition, SpaceX reported US$100 billion in liquidity while maintaining an order backlog of US$47.5 billion.

However, stronger operating performance did not eliminate concerns over future investment requirements.

Clear Street now forecasts approximately US$65.3 billion in capital expenditures during 2026 and does not expect the company to generate positive free cash flow until 2030, extending the period before investors are likely to see significant cash returns.

Morgan Stanley reported that quarterly revenue exceeded its estimates by 16%, while EBITDA surpassed forecasts by 75%, driven by AI operations, enterprise and government Starlink services and the company's space business.

The bank also warned that SpaceX plans to maintain capital expenditures at levels similar to the second quarter throughout the remainder of the year, representing approximately US$18 billion in additional spending above its previous expectations for the second half of 2026.

Deutsche Bank significantly revised its longer-term investment forecasts, estimating US$172.5 billion in capital expenditures by 2027, compared with its previous projection of US$90 billion, reflecting expectations for continued expansion of AI computing infrastructure.

Bloomberg Intelligence analysts George Ferguson and John Butler also emphasized AI as the company's primary growth engine.

"SpaceX plans to dramatically expand its computing business in pursuit of profitability," they wrote, while noting that the strategy requires sustained capital investment and that continued development of the Starship program remains another major use of financial resources.

Despite Wednesday's decline, analyst sentiment remains positive. According to Bloomberg data, 76.9% of analysts recommend buying SpaceX shares, while 17.9% recommend holding and 5.1% recommend selling. The average price target stands at US$222.60, implying approximately 77.6% upside from the latest trading price.

IPO Lockup Expiration Adds Pressure

In addition to earnings, investors are preparing for the first major release of restricted shares following SpaceX's June initial public offering.

According to Deutsche Bank, approximately 912 million shares will become eligible for trading on Aug. 6. Additional releases of more than 300 million shares are scheduled every 15 to 20 days until the company reports third-quarter earnings, when another block of nearly 1.3 billion shares will be unlocked.

Following the earnings release, investors are now focused on two factors that could determine the stock's direction: whether SpaceX can convert its AI investments into sustainable cash flow and how the release of billions of additional shares affects market performance over the coming months.