SpaceX Delayed Its Starship Launch and the Stock Fell Below Its IPO Price. One of Those Things Matters. The Other Doesn't.
Key Points
SpaceX decided to delay its much-anticipated Starship launch after multiple engine failures.
While disappointing, delays like this are common in developmental programs.
The delay will likely have little to no impact on the long-term thesis.
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Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, completed the largest IPO in history earlier this year, and the initial reception was a positive one. However, shares have been under pressure recently and are now trading below their $135 IPO price.
The initial reason for the stock cooling off was simply the post-IPO hype running out of steam, but the latest move can be attributed to the delay of the company's much-anticipated Starship launch. But how much does this delay affect the investment thesis?
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Why the Starship delay is (mostly) noise
To be perfectly clear, Starship is a big part of the long-term investment thesis. Once the Starship rocket (which is much larger than SpaceX's current launch vehicle) reaches the commercial flight stage, it should dramatically improve mass-to-orbit economics and set the company's launch business on a clear path to profitability. Longer-term, this is a crucial component of Elon Musk's plan to put data centers into orbit.
Image source: Getty Images.
However, a single delay like this does nothing to change the thesis. In fact, when it comes to development programs like Starship, delays, cancellations, and even outright failures are standard occurrences. As an example from a competitor, Rocket Lab's (NASDAQ: RKLB) highly anticipated Neutron rocket was initially planned to launch in late 2024 -- and we're still waiting. Delays are an expected part of a responsible engineering approach.
In addition, SpaceX's near-term revenue (and profit) driver is Starlink, not the launch program. Starlink and the massive AI compute deals the company has signed recently matter most over the next couple of years, and they're doing just fine. A week-long (or even a month-long) delay in the Starship timetable does nothing to change the addressable market opportunity or the company's competitive advantages. There's simply nothing else like Starship.
What does matter to the investment thesis?
It's important to take a step back and consider the most important drivers of long-term value for SpaceX:
- Starlink's growth and cash flow.
- The company's new and growing AI compute business, which has deals with Anthropic, Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), and more.
- SpaceX's launch dominance. Most payloads launched into orbit today are carried by SpaceX rockets.
- Optionality for Starship (things like AI data centers in orbit and eventual interplanetary transport).
Don't get me wrong. Starship certainly plays a big part in this, especially the third and fourth points on the list. But whether Starship launches tomorrow, next week, or even in a few months, none of these things will be materially impacted.
Expect more volatility
SpaceX reached a high of $225.64 a few days after going public. Since that time (about a month ago), the stock has declined by about 45% as of this writing. And we're unlikely to see volatility subside anytime soon, regardless of what happens with Starship in the near term.
This is why the headline suggests that the stock dipping below its IPO price does matter. Investors should realize that only about 4% of SpaceX's shares actually trade, which is an extremely thin float, especially for a Nasdaq-100 component. When you combine that with the general AI stock sell-off we've seen recently and the pending lock-up expirations, any perceived negative news -- like the Starship delay -- can have a disproportionate impact on the stock price relative to the actual impact on the business.
Full disclosure: I still think SpaceX is a richly valued stock, even at the current price of about $125, and you aren't likely to find shares in my portfolio anytime soon. But it's important to emphasize that the Starship delay itself is likely to be a non-event for SpaceX's long-term potential.
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Matt Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Rocket Lab. The Motley Fool has a disclosure policy.
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