Is SpaceX a Buy After Its Monster Earnings Report?

Elon Musk's Space Exploration Technologies (NASDAQ: SPCX) just delivered its second earnings report since becoming a publicly traded company. The results gave Wall Street plenty of reasons to celebrate.

As of this writing (Oct. 21), SpaceX stock is up roughly 10% as investors reassess the company's long-term potential. I think more investors are understanding how Musk's infrastructure conglomerate is swiftly becoming a diversified technology platform with multiple levers to generate recurring revenue and sustainable profits.

While the investment thesis around SpaceX is getting stronger, smart investors should be careful about chasing momentum right after an earnings report.

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SpaceX just delivered a monster earnings report

During the third quarter, SpaceX generated $14.6 billion in revenue, representing 161% year-over-year growth and 86% sequential growth. Even more encouraging, the company generated $4.4 billion in net income, compared with a loss of $1.1 billion during the same period last year.

As usual, one of the standouts was Starlink -- the satellite internet service powering SpaceX's connectivity segment. Quarterly revenue climbed 69% year over year to $5.2 billion, while operating income doubled to $2.4 billion. Starlink ended September with 13.6 million consumer subscribers, adding 1.6 million during the quarter alone. Importantly, Starlink's opportunity extends beyond residential internet.

Enterprise and government revenue surged 91% year over year to $2.1 billion, reflecting accelerating demand for satellite connectivity across commercial aviation, government agencies, and other industries. By the end of the quarter, more than 3,800 aircraft were equipped with Starlink. In addition, SpaceX is also developing Starlink Mobile, which could pave the way for satellite-to-phone connectivity and create another source of high-margin revenue.

Artificial intelligence (AI) is becoming a major catalyst

For me, the most surprising development was the performance of SpaceX's super intelligence (SI) division. What was barely more than an idea at this time last year has suddenly become the company's largest business in terms of revenue. During the third quarter, SpaceX's SI revenue was $7.6 billion -- representing 830% growth year over year. Artificial intelligence (AI) services now account for more than half of SpaceX's total quarterly sales.

Much of this growth reflects SpaceX's expanding AI infrastructure. The company has secured a number of compute capacity agreements with hyperscale customers, including Google Cloud and Anthropic. Moreover, SpaceX expanded its capacity to 1.7 gigawatts, compared with 1.4 gigawatts last quarter and just 0.6 gigawatts a year earlier.

The company is also moving beyond infrastructure services through its Grok generative models and the acquisition of Cursor, an AI coding platform. Cursor contributed $608 million in revenue following the completion of the acquisition in August, while growing adoption of Grok Bot provides another opportunity to monetize AI.

The most important figure from the SI division is that it generated $431 million in operating income. To put this into perspective, this segment reported a $1.7 billion operating loss in the prior-year quarter. Indeed, profitability remains modest relative to SI's revenue. However, the improvement illustrates how SpaceX's AI ambitions are beginning to translate rapid top-line growth into profitable unit economics.

Is SpaceX stock a buy after earnings?

SpaceX's latest results highlight the advantages of its diversified business model. Starlink provides a reliable source of operating profits, while AI offers unusually high revenue potential given the ongoing infrastructure supercycle. Meanwhile, SpaceX's launch capabilities remain supportive to the expansion of both of these businesses.

With that said, investors shouldn't overlook the financial demands of SpaceX's growth. The company spent $19.6 billion on capital expenditures (capex) during the third quarter, the majority of which was dedicated to SI infrastructure. Since building advanced computing facilities requires enormous upfront capital outlays, operating profitability does not necessarily translate into positive free cash flow right away.

Nevertheless, I think SpaceX is becoming an interesting opportunity for investors seeking exposure beyond the usual AI semiconductor stocks and "Magnificent Seven." The caveat here is that blindly following an enthusiastic post-earnings rally is usually a setup for becoming a bag holder.

For patient investors, the more prudent approach is to accumulate a position in SpaceX stock gradually over time through dollar-cost averaging. This strategy will allow you to buy the stock over a long-term time horizon as opposed to trying to time the perfect entry point.

Adam Spatacco 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.