Did SpaceX Just Save CoreWeave, Nebius, and the Neocloud Sector?
Key Points
Elon Musk said that prices for AI compute were rising.
He also believed that the payback period for SpaceX's investment in AI infrastructure was less than a year.
Those factors should benefit neocloud stocks like CoreWeave and Nebius.
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Coming into Space Exploration Technologies' (NASDAQ:SPCX) third-quarter earnings report, confidence in AI infrastructure stocks was collapsing.
CoreWeave (NASDAQ:CRWV), the largest neocloud stock, has been at the center of the controversy since Chamath Palihapitiya posted a chart showing that some of its bond yields have reached 15%, a sign that doubts about its ability to pay back its massive debt have grown. Those concerns weighed on peers like Nebius and IREN, dragging them lower as well.
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SpaceX may be best known as a space company, and its Starlink satellite internet business makes up the bulk of its profits, but the company is increasingly becoming an AI infrastructure company.
In the third quarter, SpaceX's SI, or superintelligence, segment made up more than half of its revenue and accounted for more than 80% of its capital expenditures.
The company is renting out its computing capacity to customers like Google and Anthropic in a similar way to the neoclouds, and it's seeing demand soar with SI revenue nearly tripling from the previous quarter to $7.56 billion.
CEO Elon Musk also made it clear on the call that there's no shortage of demand for AI compute.
Image source: Getty Images.
The SpaceX AI build-out is accelerating
Musk maintained his forecast that the company would bring an additional 10 gigawatts of compute online in 2027, which would be an astounding achievement, as that's roughly the amount of power it would take to power the homes in New York City.
Musk also told investors that current pricing for AI compute is generating a payback period of less than a year on new deployments, adding that pricing is slightly above the high end of the $30-$50 per watt range it had previously given. He called the current dynamics "extraordinary," and it's betting on that opportunity with plans to spend on $35 billion-$40 billion in capital expenditures in the fourth quarter, primarily on compute infrastructure, after spending $19.6 billion in the third quarter.
What it means for CoreWeave and the neocloud sector
For CoreWeave, Nebius, and the rest of the neocloud sector, SpaceX's comments on pricing and fast payback periods are clearly a promising sign.
Those stocks were up after hours on Tuesday, along with SpaceX, but when regular trading opened today, they turned red, indicating that investors may not be so easily persuaded by SpaceX's comments. By afternoon trading, both stocks were up less than 1%, underperforming the Nasdaq.
Musk's comments bode well for the upcoming quarterly reports from CoreWeave and Nebius and could indicate that their growth will accelerate. However, that's only half of the equation for these stocks.
CoreWeave has plunged in recent weeks on concerns about its debt burden and interest payments. Its interest expense has now reached roughly a quarter of its revenue, a level unheard of for a stable company. Growth will help it absorb its debt and interest expense, but the company doesn't have the same luxury as SpaceX, which raised $75 billion in its IPO, has a highly profitable business in Starlink, and has much more credibility than CoreWeave, in part due to Elon Musk's role.
Can CoreWeave bounce back?
The good news for CoreWeave is that the company's revenue growth is expected to accelerate in the third quarter, as it starts to convert its $129 billion backlog into revenue and deploys new data center capacity.
Analysts expect revenue to jump 159% to $3.54 billion, and see its growth rate accelerating again in the fourth quarter. That means the company has a tall task ahead when it reports third-quarter earnings on Nov. 11. It has to hit or exceed that growth number and make progress on the bottom line.
It won't be easy, but after SpaceX's comments, the company's prospects are considerably better than they were a week ago.
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Jeremy Bowman has positions in CoreWeave. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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