SpaceX: Houston, we have a problem?

Elon Musk's rocket appears to be losing altitude, with the stock now on the verge of falling below its $135 IPO price, down more than 36% from its peak, despite its inclusion in the Nasdaq-100.

And it’s not because market sentiment deteriorated amid the renewed escalation in the Middle East — the S&P 500 index has barely moved over the past five trading days, while SpaceX stock price has fallen more than 11%.

So what's pushed the stock down so much?

First, the company went public at a record-breaking valuation, as CNBC noted, with its $1.75 trillion valuation implying a price-to-earnings ratio of nearly 100x compared with roughly 20–25x for Nvidia, making the stock extremely expensive at $200 per share. 

Second, rising competition may also be weighing on the company, as China’s CASC recently successfully tested an experimental rocket retrieval system using a net attached to a sea platform. Who knows, China could soon have its own version of Starlink…

Then there’s the September lock-up expiration for around 20% of insiders, many of whom may sell part of their holdings to lock in profits.

The longer-term outlook isn’t much better either. Morgan Stanley analysts expect the company to remain cash-flow negative until 2035, with annual capital spending reaching $300 billion by 2031. In other words, SpaceX could burn massive amounts of cash for years before investors see meaningful free cash flow.

The longer-term outlook also remains challenging: Morgan Stanley expects SpaceX to stay cash-flow negative until 2035, with annual capital spending projected to reach $300 billion by 2031 before the company generates meaningful free cash flow.

And there’s another risk coming from the broader tech sector if sentiment starts to weaken. Actually, we’re already seeing some early signs, with IBM shares falling more than 20% after its preliminary second-quarter revenue came in below Wall Street expectations.

As for the recent sell-off in memory-chip makers like Micron and Seagate, it could partly be explained by profit-taking after a strong rally, but concerns are also growing about a potential memory oversupply over the next two years. If those concerns grow, the pressure could spread to other parts of the tech sector.

In sum, SpaceX stock seems to be suffering from high valuations, stronger competition, potential insider selling, prolonged cash burn, and a less supportive environment for tech stocks. It’s still too early to say whether the market has fully priced in all these risks.