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Why SpaceX Stock Dropped on Thursday
Key Points
SpaceX’s AI expansion requires enormous capital spending, leaving investors sensitive to financing costs.
Meta’s negative free cash flow added to concerns about funding the AI buildout.
Musk’s public support for a Tesla merger has reportedly raised concerns about shareholder scrutiny and delays.
Space Exploration Technologies Corp. (NASDAQ:SPCX) shares fell 9.1% on Thursday, Oct. 22, as AI funding concerns and uncertainty over a potential Tesla merger weighed on the stock.
The S&P 500 and the Nasdaq Composite dropped 1.2% and 2.6%, respectively.
Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
The AI expansion needs enormous amounts of capital
Higher oil prices add to inflation concerns, which can send interest rates and borrowing costs higher. That's an issue for companies across the AI industry, especially those involved in actually building the massive data centers that power AI, like SpaceX.
Alongside massive 161% growth on its top-line, SpaceX's Tuesday quarterly earnings report showed capital expenditures of more than $16 billion. Management projected another $35 billion to $40 billion in Q4. The company has to fund that, and with negative free cash flow (FCF) -- the money left after operating expenses and capital spending -- it's likely the company will need to borrow more to do so.
Image source: Getty Images.
Meta Platforms didn't help the AI funding narrative. It too reported massive capital spending and negative FCF. That's especially of note given Meta's traditional image as a cash-generating machine.
Merger talks face another complication
SpaceX stock was also seeing pressure after Reuters reported Thursday that some people involved in the Tesla talks worry that Musk's endorsement of a merger with Tesla would lead to unwanted scrutiny and possible delays. Others were concerned that given the current state of Tesla's business, any merger would be a net negative for SpaceX shareholders.
To be clear, the talks are still preliminary, and no terms have been set. For SpaceX investors, that leaves the cost of its AI expansion alongside uncertainty over what a combination with Tesla might involve.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.