Beyond Space: AI Compute & Starlink Drive SpaceX Growth

The Average IPO Corrects Roughly 50%

Earlier this year, Space Exploration Technologies (SPCX) became the largest initial public offering (IPO) in history with a valuation near $2 trillion. Despite SpaceX’s size, its near-monopoly in its industry, and being one of the most hyped IPOs ever, shares fell from a high of $225.78 to a low of $105.62. History teaches investors that such corrections are the norm. In fact, within one year of its debut, the average tech IPO sees a drawdown of 55% from its peak. SpaceX just witnessed a 53% drawdown.

Whether it was due to psychology or mispricing, the correction in SpaceX shares is no surprise to seasoned investors. In fact, long-term market winners like Meta Platforms (META), Palantir (PLTR), and Snowflake (SNOW) all suffered 50% drawdowns early on before beginning their uptrends.

SpaceX Earnings & Guidance Impress

Last week, SpaceX delivered earnings that beat Wall Street expectations. Revenue jumped 92% year-over-year to $7.8 billion while net losses narrowed to $143 million versus $541 million. EPS of -$0.09 beat Zacks Consensus Estimates by a juicy 65.38%.

However, SpaceX CEO Elon Musk’s guidance was even more intriguing. Musk now expects SpaceX to reach $1 trillion in revenue by 2030 with a “non-zero” chance of reaching it in 2029. Additionally, Musk expects annual recurring revenue (ARR) to explode to $100 billion by year-end (up from a $10.4 billion run rate in June).

xAI Segment is on Fire

Although SpaceX is known for being a space company, its fastest-growing business segment is AI hardware. Top-line growth is being driven by lucrative contracts from AI giants Alphabet (GOOGL) and Anthropic. Compute revenue reached $2.6 billion (+247% YoY). Meanwhile, in the earnings call, management projected that SpaceX is now targeting 10 gigawatts (GW) of compute for 2027. Currently, SpaceX has ~1GW of compute.

Starlink is Disrupting the Telecom Space

Starlink, SpaceX’s satellite internet service, is also experiencing rapid growth. Connectivity revenue reached $4.3 billion, up 66% year-over-year, while subscribers doubled year-over-year to 12 million. On the earnings call, Musk highlighted the company’s V3 satellite, saying:

“Starlink V3 satellite is about an order of magnitude more capable than the Starlink V2…even if our monetization per bit dropped by a factor of 10, that would still mean a 10x increase in the revenue of Starlink.”

Meanwhile, Starlink is expanding beyond remote home broadband to higher average revenue per user (ARPU) businesses like enterprise, aviation, maritime, and defense. Also, Starlink will be unveiling a direct-to-cell mobile connectivity service to take on legacy telecom companies like AT&T (T) and T-Mobile (TMUS).

Starship is a Massive Catalyst

Starship is SpaceX’s game-changing rocket, currently in testing, and the largest flying manmade object. In July, Starship’s 13^th test flight achieved several monumental firsts including:

·       Heatshield Success: Starship’s heat shield survived atmospheric reentry entirely intact for the first time.

·       Satellite Deployment: Starship successfully deployed 20 next-gen Starlink V3 satellites in orbit.

·       Reusability: The Super Heavy booster achieved a controlled descent (although it had a hard splashdown), getting the Starship one step closer to reusability.

Starship will have its next test soon. Once Starship is up and running it will be able to deliver up to 300 metric tons to space (~5x more than its Falcon 9 rocket).

CAPEX Normalization

Like many big tech companies, SpaceX’s capital expenditures soared. CAPEX grew more than 600% to $18.37 billion. However, as the hyper-aggressive CAPEX cycle (driven by AI buildouts and Starship R&D) normalizes, free cash flow generation will explode.

Bottom line

Driven by explosive growth in non-traditional segments like AI compute hardware and Starlink, SpaceX is laying the groundwork for unprecedented scale.

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This article originally published on Zacks Investment Research (zacks.com).

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