As SpaceX Falls Down to Earth, the Stock Is Still Not a Buy

Space Exploration Technologies (NASDAQ: SPCX), or SpaceX, became the largest company ever to undertake an initial public offering (IPO) earlier this month, and the stock had a strong start out of the gate. It rose three straight days after debuting, hitting a high of $225.64. However, the stock has since pulled back to levels at which it traded on its first day, and I would be wary of buying it here.

Historically, it is very common for stocks to eventually trade below their opening-day low. According to The Lifecycle Trade, this happens about 90% of the time. In fact, SpaceX traded below its day-one low price for the first time on June 23, only six trading days after its debut.

This is notable since the stock currently has a very low initial float of just 4%, and there should have been some initial institutional buying to support it. Now it faces a series of share lock-up expirations that will increase its float over the next year, which could pressure its shares. The company has an astonishing 15 lockup expirations over the next year-plus.

The first lock-up expirations are scheduled for the next two months. The first could come two days after its first earnings release, which Morningstar currently estimates will take place in late July or early August. Insiders will then be able to sell 911.5 million shares, or nearly 7% of its original shares outstanding, if they wish. Another 319 million shares, or about 2.4% of its original shares outstanding, will be released on Aug. 20.

Image source: The Motley Fool.

The long view

Setting aside near-term trading dynamics, what about SpaceX's long-term prospects? The company has painted a very bright picture of its future, where not only will it have leading connectivity (satellite internet and mobile) and rocket-launching businesses, but it will also be operating AI data centers in space. It also plans to build a large chip manufacturing facility with Tesla and Intel.

With the company producing just under $19 billion in revenue last year and carrying a $2 trillion market capitalization, investors are betting very heavily that some of SpaceX's moonshot bets pay off. Its reusable rocket business gives it a cost advantage, and its Starlink satellite internet business is nice, but this is a capital expenditure-heavy business that will be solid but not worth getting overly excited about. Meanwhile, Nvidia's CEO was very skeptical of SpaceX's Terafab initiative.

Between its near-term trading dynamics, high valuation, and heavy emphasis on things that may or may not happen in the future, this is an AI stock I'd avoid.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Nvidia, and Tesla. The Motley Fool has a disclosure policy.