Why increased AI spending caused SpaceX shares to fall

On August 4, the stock of SpaceX, the rocket, satellite and AI conglomerate founded by Elon Musk, experienced a significant drop of 7.5% in post-market trading following the disclosure of higher-than-expected spending on its artificial intelligence (AI) business. The company reported a quarterly revenue of $7.8 billion, surpassing Wall Street forecasts.

However, SpaceX recorded a net loss of 9 US cents per share for the quarter, which was lower than the 24-cent loss predicted by analysts. The company's total capital spending in the second quarter reached approximately $18.4 billion.

Elon Musk, in a conference call after the earnings report, expressed optimism about the rapid increase in the cadence of AI development. He mentioned that Starship, the most powerful rocket ever built, is at the core of SpaceX's ambitious plans to expand Starlink and send humans to the moon and Mars. Despite the rocket's successful test flight on July 24, which deployed satellites and returned to Earth largely unscathed, Starship development has been fraught with setbacks, malfunctions, and delays, costing the company $15 billion so far.

SpaceX's Starlink satellite-internet service, which is the only profitable business within the company, had 12 million subscribers by the second quarter, slightly lower than the 12.19 million expected by analysts. The company aims to further develop terrestrial mobile infrastructure using Starlink for direct-to-mobile services.

Musk's decision to take SpaceX public was closely linked to the company's efforts to pioneer space-based data centers. However, these costly and largely unproven strategies involve launching satellite networks that rely on constant solar energy to compute data in orbit and beam it down to Earth. The AI business at SpaceX reported an operating loss of US$1.26 billion, better than the US$2.39 billion loss forecast by analysts.

Despite this, the company expects capital spending in the third and fourth quarters to remain similar to the second quarter.

As part of the company's AI efforts, SpaceX disclosed an AI loss of US$1.26 billion, lower than the US$2.39 billion loss analysts had predicted. The company also revealed that it would continue to incur similar capital spending in the third and fourth quarters. SpaceX has secured contracts for $6.7 billion in cloud-services revenue for the third quarter and has inked agreements with major tech companies like Alphabet's Google and Anthropic.