RBC Says SpaceX Stock Has 50% Upside. S&P Global Just Warned About Its Hidden AI Debt. Here's Who I Think Is Right.
Take heed of recent concerns about AI spending continuing at record levels.
Last week, contrasting perspectives emerged in the financial world regarding Space Exploration Technologies (SPCX +1.14%), the esteemed space and artificial intelligence (AI) firm known as SpaceX. While RBC, a sell-side analyst, reaffirmed its bullish outlook on the company, S&P Global, a ratings agency, cautioned against potential risks.
RBC's optimism stems from the company's remarkable quarterly earnings report. On October 20th, SpaceX unveiled $14.6 billion in revenue and $4.4 billion in earnings, a staggering 161% increase in revenue and a significant turnaround from the $1.1 billion loss reported in the previous quarter. Starlink, SpaceX's satellite internet network, was the driving force behind these impressive figures, generating $5.25 billion in revenue and $2.4 billion in operating income.
Management's guidance for Q1 2027 paints an even more ambitious picture, with projected revenue ranging between $33 billion and $37 billion, which far surpasses Wall Street's estimated $22 billion.
Founder and CEO Elon Musk highlighted SpaceX's rapid expansion in AI capabilities, claiming to outpace competing hyperscalers. However, S&P Global remains skeptical, pointing out that the company's AI-related capital expenditures may be overstated. According to the ratings agency, top six hyperscalers, including SpaceX, plan to invest $7 trillion in AI by 2029.
Despite the additional debt not appearing as liabilities on their balance sheets, SpaceX's AI capital expenditures reached $19.6 billion in the most recent quarter, with estimates projecting this figure to soar between $35 billion and $40 billion in the upcoming quarter.
The ratings agency points out that SpaceX is finalizing a $40 billion off-balance-sheet debt structure to fund its extensive AI build-out. While this ambitious move could potentially yield significant returns, the current market conditions warrant caution. With trillions of dollars at stake, investors should exercise patience before incorporating SpaceX into their portfolios or entering new positions.
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