SpaceX Dropped Sharply on Monday. Is It Worth Buying the Dip?

Space Exploration Technologies (NASDAQ: SPCX) is seeing red. Downticker-red, not martian.

For the third trading day in a row, shares of recently IPO'd SpaceX have tumbled. Monday, June 22, was its worst day yet, with a one-day drop of about 16%.

Investors who have been patient so far are probably wondering whether now might be a good time to buy the dip. With that question in mind, let's look closer at the seventh-most valuable company in the world.

Image source: Getty Images.

Why is SpaceX's share price falling?

The first thing to note in this three-day dip is that SpaceX, the business, hasn't fundamentally changed.

It's still the same three-headed company that came to the market on June 12. There's the space side of the business, which makes money on launches; then there's the connectivity side, which makes money on Starlink broadband; and finally, there's artificial intelligence (AI), which sells Grok subscriptions and rents out data center processing power.

That said, some news has been reported since the IPO that might be giving Wall Street the jitters. Last Tuesday, June 16, SpaceX announced plans to acquire AI coding platform Cursor in a $60 billion all-stock transaction. While the acquisition would undoubtedly help SpaceX's AI ambitions, it would also dilute existing shareholders. Few phrases are less popular on Wall Street than "issue more shares," which might explain the roughly 5% dip in SpaceX stock the day after (June 17).

Then came another surprising bit of news. On Monday, the company announced it would sell bonds to raise cash, with CNBC reporting the offering could be as much as $20 billion. That's a hefty wad of cash, even by SpaceX standards, which immediately raised the question of why a company sitting on about $100 billion would need to borrow an additional $20 billion.

Should you buy the dip on SpaceX today?

To be sure, neither of these is necessarily concerning in itself. In fact, they could be smart business moves. SpaceX's high valuation enabled it to acquire an asset that will strengthen its business, while taking on debt can sometimes be more prudent than spending cash.

But here's the thing with SpaceX: Its rich valuation means any hint of bad news can easily cause a bad day on the market. Investors didn't buy a $2 trillion company to get blindsided. Expectations are high, and that means disappointment -- or the fear of being disappointed -- can trigger an outsize reaction.

The dip has brought SpaceX's valuation down, but its stock is still uncomfortably pricy. Aggressive investors may see this as a buying opportunity. Most, however, will likely want to watch from the sidelines until the space stock's fundamentals catch up.

Steven Porrello 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.