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The market is wrong to hate SpaceX earnings. This is a buying opportunity. I may be in the minority here. But I like what I heard on SpaceX’s earnings call.
The stock plunged 10%. But everything that matters for the long-term thesis moved forward meaningfully.
This selloff is a buying opportunity.
Let me show you what I mean…
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The most important news came from the Space segment.
It’s SpaceX’s rocket and launch business.
Elon Musk said he now considers Starship’s heat shield problem “solved.” He also said: “we do not see any technical obstacles at this point to achieving full and rapid reusability.”
As you’re probably well aware, a heat shield is what keeps a spacecraft from burning up when it re-enters the atmosphere at about 17,000 m.p.h. The Space Shuttle had one. And it worked. But it needed months of painstaking inspection between flights. And once it failed catastrophically. That’s a big reason the Shuttle never delivered cheap, routine spaceflight. It wasn’t “reusable” in the practical sense.
Starship’s entire promise, and really the entire long-term promise of SpaceX itself, is being reusable the way an airplane is reusable. Land it. Refuel it. Fly it again. Flight 13 in July came home with an intact heat shield and the softest splashdown yet. And, assuming the company receives regulatory approval to do so, SpaceX will try to catch the ship with the launch tower on its next flight, tentatively scheduled for the end of this month.
If the heat shield problem is truly solved, Starship stops being an invention problem and becomes a manufacturing and scheduling problem. Those are two very different kinds of “hard,” and companies solve the latter kind all the time.
Musk is now talking about perhaps one Starship flight per day within a year. I’d treat that the way I treat all his timelines… directionally right, chronologically optimistic.
Direction is what matters. Starship sits underneath (or upstream) of everything else: Starlink’s next generation satellites. Bringing the cost per kilogram of sending stuff to space down to below $100. Orbital AI data centers. And bases on the Moon.
Meanwhile, Starlink did something better than what I asked for…
Going into the Q2 print I said I wouldn’t mind if Starlink’s revenue per customer slipped. The company is deliberately chasing scale by targeting lower-income countries and more price-sensitive households.
It didn’t slip. Average revenue per user (ARPU) held at $66 a month, flat with the prior quarter—while the company added a record 1.7 million subscribers, up more than 20% from Q1. Growing that fast sequentially without giving up some ARPU is impressive. And May’s price increases have barely shown up yet. Existing customers only started paying higher rates on billing cycles beginning June 18.
Here’s something else important I think most folks will miss: Inside Starlink, consumer revenue grew 44% year over year. But business and government revenue grew 108%—from a smaller base, yes, but still more than twice as fast. And president and COO Gwynne Shotwell said outright: “We have never lost an enterprise customer.”
That makes sense. A household may cancel a Starlink subscription for any number of reasons. But an airline that’s installed the hardware on hundreds of aircraft, retrained its crews, and advertised free fast Wi-Fi to passengers will not. Shotwell says SpaceX is only 10% penetrated in aviation and expects business revenue to eventually exceed consumer revenue.
So the world’s biggest rocket company is also turning into a business-to-business subscription company. That’s a much more boring story, but it’s a very durable one.
Now, the number that explains why the stock plunged…
SpaceX spent $18.4 billion on equipment and facilities (i.e., capex) in Q2, against $7.8 billion in revenue. Well above the $13 billion to $14 billion that analysts expected. About $15.8 billion of that capex went into AI computing.
So the company spent about $2.36 building things for every $1 it took in. And most of it went into AI data centers here on Earth.
Picture a pizza shop taking in $780 a day from selling pizza but spending $1,840 a day building more ovens. That’s beyond reckless. Until you learn that each oven pays for itself in under a year. That’s exactly what SpaceX CFO Bret Johnsen said about new compute investments—they’re paying back in under 12 months. Demand for AI computing badly exceeds supply. If that’s true, spending is the right answer. And more spending is an even better one.
Meanwhile, according to Johnsen:
“In the first few weeks of the third quarter, we’ve already contracted an additional $6.7 billion of cloud services revenue over a 6-month period that begins ramping in October of this year.
We believe this puts us on a trajectory, including contribution from Cursor, to reach $100 billion of ARR or annualized revenue run rate by the end of this year based on our expected revenue in the month of December of this year.”
I want to highlight this quote from the earnings call because it introduces a bar management just set for itself that we can easily track.
SpaceX expects its three business segments to reach a combined annualized revenue run rate of $100 billion by December, with AI cloud services contributing the largest share. In other words, December’s revenue multiplied by 12 needs to equal $100 billion. That works out to about $8.3 billion in revenue for the month.
In Q2, average revenue per month was about $2.6 billion. So SpaceX needs to more than triple monthly revenue in six months to meet the bar it just set for itself. That’s certainly achievable given the size and pace of the AI cloud services deals being inked right now. But it’s still a very high bar.
The stock price over the next six months or so will effectively be a referendum on whether that ramp is arriving/arrives on schedule.
As I've said, “On a 3-5 year horizon, I think SpaceX is the highest-conviction ‘picks and shovels’ bet on the space and AI economies available to public-market investors.”
If the market gives you another chance to buy because of short-term volatility, use it.
Thanks for reading.
Related: Fast Growth Can Be a Trap. Healthy Growth Builds Great Companies.