Why SpaceX Stock Dropped on Thursday

On Thursday, October 22, SpaceX stock experienced a 9.1% drop, falling in tandem with the broader market declines of the S&P 500 and Nasdaq Composite. The drop was attributed to concerns over AI funding and speculation surrounding a potential merger between Tesla and SpaceX. The S&P 500 and Nasdaq Composite both fell by 1.2% and 2.6% respectively, adding to the uncertainty in the market.

SpaceX's challenges are compounded by the rising oil prices, which contribute to inflation concerns. Higher inflation can result in increased interest rates and borrowing costs, posing a significant issue for companies, especially those involved in AI, like SpaceX. The company's capital expenditures have seen a massive 161% growth, and its quarterly earnings report revealed capital expenditures of over $16 billion.

Management had projected additional expenses of $35 billion to $40 billion for the fourth quarter, necessitating further funding.

SpaceX's free cash flow (FCF) is currently negative, meaning the company spends more than it generates. This situation suggests that the company may need to borrow more to fund its expansion. The company's financial struggles are further exacerbated by Meta Platforms, another company facing similar issues with massive capital spending and negative FCF.

The Tesla merger talks have also added to the uncertainty surrounding SpaceX. While the talks are still preliminary, concerns have arisen about the potential scrutiny and delays that could result from Musk's endorsement of a merger. Some investors are worried that a merger could be a net negative for SpaceX shareholders, given Tesla's current business state. However, it is important to note that these concerns are still hypothetical, and no definitive terms have been set for any potential merger.