SpaceX Plans to Take on $40 Billion in New Debt. Here's Why Investors Should Get Used to This
Key Points
SpaceX is buying chips from Nvidia, as it continues to invest heavily in artificial intelligence.
The company's capex could total $200 billion in each of the next two years, according to an analyst's projections.
Space Exploration Technologies Corp (NASDAQ:SPCX) may be known to many investors as a rocket company, but its largest opportunities are related to artificial intelligence (AI). In its S-1 filing, which detailed its risks and opportunities, it was AI that made up the lion's share of its total addressable market -- $26.5 trillion, versus $370 billion for space.
As a result, the company, which more commonly goes by just SpaceX, needs to invest heavily not only in space but also in AI. The company is reportedly in talks to raise $40 billion in debt to buy GPUs from chipmaker Nvidia. It's a costly move, but one that's needed in order for the company to develop its AI capabilities. It's also something investors should get used to.
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SpaceX's capital spending on AI may intensify
It's still the early innings in SpaceX's AI growth story, and yet the expenditures are already getting fairly significant. In its most recent quarter, which ended on June 30, its capex for AI totaled $15.8 billion, up from just $749 million a year ago.
Earlier this year, SpaceX acquired an AI coding start-up company, Cursor, for a mammoth $60 billion. And that was a deal funded through stock, not cash. It's a sign of things to come for SpaceX investors, as spending on AI is not going to come cheap.
Doug Anmuth, analyst at JPMorgan, projects that in both 2027 and 2028, SpaceX's capex will be around $200 billion. That would signify a massive acceleration, as the company has spent $28.5 billion on capex through the first six months of this year. Whether it's debt or issuing stock to pay the bills, both of those options would be bad news for investors. Debt would lead to rising interest costs and weigh on its bottom line (which may end up going deeper in the red), while issuing stock would dilute existing shareholders.
Rising cash burn and a high valuation make SpaceX a highly risky stock to own
SpaceX has some promising long-term growth potential, but investors shouldn't assume that its success is a guarantee, or that the space stock will soar, especially given its already large valuation -- its market cap is around $2.2 trillion, making it one of the most valuable companies in the world, despite a lack of profitability.
Between the concerns about cash flow and its inflated valuation, there are multiple reasons for investors to think twice about owning the stock.
JPMorgan Chase is an advertising partner of Motley Fool Money. David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Nvidia. The Motley Fool has a disclosure policy.