SpaceX’s $25 Billion Bond Offering Got Investment-Grade Ratings From All Three Agencies — And the Stock Still Fell 16% Anyway. Here’s Why
Space Exploration Corporation‘s (SPCX 4.24%) highly anticipated initial public offering raised $75 billion from investors and a total of $85.7 billion when you include the overallotment given to the investment bankers. That’s a huge sum of money that the company plans to use to build its space-based operations and to support its aspirations in artificial intelligence. But investors aren’t as excited about SpaceX as they once were.
SpaceX has already fallen back down to earth
When SpaceX held its IPO, there was a huge amount of excitement, and the stock rose sharply for a few days. But the stock has quickly fallen back toward the IPO price. In fairness to SpaceX, that’s not an unusual outcome for an IPO. However, there was so much excitement around SpaceX that the price drop warrants examination.
Image source: Getty Images.
SpaceX was very clear in its IPO prospectus that its Starlink telecommunications business was profitable, but its space and AI operations were not. It was also upfront about the need for massive capital spending in the future to support its business goals. This is one of the reasons why the newly public company issued $25 billion in debt shortly after its IPO. That debt was rated investment-grade, which is good news, but the stock dropped after the additional capital raise.
SpaceX is a long-term investment
The real problem is that Wall Street got so excited about SpaceX’s IPO that it lost sight of the big picture. SpaceX is a money-losing start-up, and that’s not likely to change anytime soon, given CEO Elon Musk’s big plans for the business. As investor enthusiasm for the IPO wanes, the deeper business story is gaining traction. It doesn’t help that the broader artificial intelligence trade is also facing increasing scrutiny from investors.
Space Exploration Technologies
Today’s Change
(-4.24%) $-6.16
Current Price
$139.14
Key Data Points
Market Cap
Day’s Range
$136.78 – $144.92
52wk Range
$136.78 – $225.64
Volume
71.5M
Avg Vol
149.9M
All of that said, emotions are still the driving force here. In fact, there is a notable positive: SpaceX is being added to major indexes. That should lead to buying support for the shares. Still, the stock is best viewed as a long-term investment. The big goals of supporting space exploration and building AI data centers in space won’t happen in a year. It is entirely possible that the stock falls even further before SpaceX starts to see traction on its long-term goals, even as the red ink continues to flow.
Understand what you are getting into with SpaceX
If you watched the SpaceX IPO from the sidelines, you may want to keep it on your wishlist in case mercurial investors keep selling the stock. If you own SpaceX, make sure you are ready to stick with it for the long haul. If you aren’t, recognizing it could mean sitting with paper losses for years, you may want to consider selling while the stock price is still hovering near the IPO price.
