SpaceX Stock Just Made This Startling Move. Stock to Avoid or No-Brainer Buying Opportunity?
Key Points
Space Exploration Technologies (NASDAQ: SPCX) was a stock market winner right out of the gate. The industrial and tech giant, more commonly known as SpaceX, soared 19% on its first day of trading — and that was after the company completed the world’s biggest initial public offering. After the exercise of an overallotment option, the company raised a total of more than $85 billion.
Investors rushed to get in on the operation itself — it was greatly oversubscribed — and scooped up shares of SpaceX in its early days on the stock market. The stock reached an intraday high of more than $225 on June 16, representing a 50% increase from its opening price of $150 on June 12 and a 67% increase from its IPO price of $135.
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But, in recent days, the stock has pulled back. In fact, SpaceX stock just made a particularly startling move, closing at $148 on July 8, a level that is below the company’s debut price. Is SpaceX a stock to avoid or a no-brainer buy on the dip? Let’s find out.
Image source: Getty Images.
SpaceX takes center stage
SpaceX attracted a great deal of attention even prior to the announcement of its IPO, as investors speculated about when such a move would come. And the company truly took center stage once it filed for an operation and details emerged.
Why so much excitement? SpaceX operates in businesses that surely appeal to growth investors: rocket launches, satellite-based internet services, and artificial intelligence (AI). On top of this, Elon Musk leads SpaceX — he’s known for innovation and high ambitions, qualities that please many investors.
SpaceX has delivered certain successes, such as completing the most rocket launches of any company last year and growing its satellite internet subscriber base from 2.3 million to more than 10 million in just three years. In SpaceX’s prospectus, it revealed an AI win: Anthropic has agreed to pay SpaceX $1.25 billion on a monthly basis through 2029 for access to compute capacity.
What investors also may like about SpaceX is the vertical nature of its business. The company’s strengths in one business may be applied to the other businesses. For example, SpaceX’s rockets will be used to launch materials into space for the connectivity and AI businesses. This reduces costs, streamlines operations, and offers SpaceX more control over many aspects of its development.
SpaceX and risk
So, what’s not to like about this market giant? It’s important to note that SpaceX comes with a certain amount of risk, as the company itself highlighted in its prospectus. Certain major goals are linked to the development of new technologies that haven’t been fully proven — and if a certain technology doesn’t work out, that may delay a goal or make it impossible to achieve.
Such goals include developing AI data centers in space at scale, manufacturing AI chips at scale, and establishing a lunar economy, the company said. These and other initiatives “involve significant technical complexity, unproven technologies or technologies that do not exist, and such initiatives may not achieve commercial viability,” according to the prospectus.
Meanwhile, to attempt to reach these goals, SpaceX must invest significantly. Last year, capital expenditures reached $20 billion, exceeding the company’s $18 billion in revenue. And I would expect this trend to continue as the technologies involved are complex, requiring financial investment and time.
All of this shows us that SpaceX is an exciting company that could offer high growth, but success isn’t guaranteed. Many of the elements that investors may be counting on are still in development stages. And all of this equals risk.
Consider your investing strategy
So, after SpaceX’s startling move, dropping below its debut price, are we looking at a no-brainer buying opportunity? Or is SpaceX a stock to avoid? There isn’t a one-size-fits-all answer — and a lot depends on your investment strategy.
If you’re a cautious investor, the answer is clear: SpaceX is a stock to avoid as it comes with too much risk.
If you’re a middle-of-the-road investor, it may be a good idea to pick up SpaceX shares on the dip — but not necessarily this dip. Instead, even investors who don’t mind some risk would be better off waiting for at least one earnings report for additional clues about the company’s progress. I don’t think this dip will be the last, so there should be other opportunities.
Finally, if you’re an aggressive investor and eager to get in on the SpaceX story, you may consider picking up a few shares at this level, but only as part of a well-diversified portfolio.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
