To The Moon

What a difference a few days can make in the stock market.

Earlier in the week, SpaceX delivered a stronger-than-expected third-quarter earnings report, helping restore confidence in the AI investment story. Yet by Friday, technology stocks were under significant pressure, and SpaceX itself had fallen below its $135 IPO price.

The contrast is worth examining. The market is not necessarily losing faith in artificial intelligence. Instead, investors appear to be raising their expectations about how quickly massive AI investments should translate into financial returns.

SpaceX: The Earnings Benchmark

SpaceX delivered a particularly strong set of third-quarter results on October 20.

The company reported:

• Revenue of $14.58 billion, up approximately 161% year over year.

• Net income of approximately $4.4 billion.

• Strong growth from its AI-related operations.

• Increasing demand for its computing infrastructure.

The results gave investors something they have been looking for: evidence that AI infrastructure investment can generate meaningful revenue and profits.

Elon Musk has ambitious plans for SpaceX, spanning satellite communications, launch services, AI computing and advanced technology. Its ability to connect these businesses creates opportunities that extend beyond the traditional aerospace industry.

However, even a strong earnings report does not guarantee a rising share price.

SpaceX shares subsequently fell 6.4% on Friday to $134.72, below the $135 IPO price. That is a reminder that valuation, market sentiment and expectations still matter.

Why Other Technology Companies Disappointed

The contrast with other major technology companies was striking.

Amazon reported earnings per share of $1.89, missing analyst expectations. AWS delivered 39% growth, which was encouraging, but investors were also concerned about slower e-commerce growth and the scale of AI infrastructure spending.

Intel was an even more dramatic example. Despite beating quarterly earnings forecasts, its shares plunged almost 29% after its fourth-quarter outlook disappointed investors.

Alphabet also faced pressure as investors questioned its search profitability and increasing AI expenditure.

Meta’s substantial investment requirements added another layer of uncertainty, while Microsoft’s relatively strong results were not enough to prevent its shares from weakening.

The message from the market is becoming clearer: beating earnings estimates is no longer sufficient when expectations are extremely high.

The AI Investment Question Is Changing

For the past two years, investors have largely focused on which companies would benefit most from the AI boom.

That encouraged enormous investment in:

• Data centres and computing infrastructure.

• Advanced semiconductors.

• Cloud computing capacity.

• AI models and applications.

• Networking and power infrastructure.

But the investment cycle is entering a more demanding stage.

Companies are committing hundreds of billions of dollars to AI infrastructure. Investors increasingly want to know how quickly those investments will generate incremental revenue, improve margins and produce free cash flow.

There is an important distinction between AI demand and AI profitability.

Demand can be strong while the cost of meeting that demand remains extremely high. A company can report impressive revenue growth but still disappoint investors if capital expenditure rises faster than earnings.

This is why SpaceX’s results attracted attention. Its earnings offered an example of strong growth alongside meaningful profitability.

However, it would be premature to assume that every AI infrastructure company can achieve the same results. Each business has different costs, customers, competitive advantages and capital requirements.

Why SpaceX Falling Below Its IPO Price Matters

There is another interesting development.

Despite its impressive earnings, SpaceX shares have slipped below their IPO price.

This highlights the difference between business performance and stock performance.

A company can deliver excellent financial results while its shares decline because investors have already priced in significant future growth.

IPO prices also carry psychological importance, particularly for retail investors who bought into the initial excitement.

As a newly listed company, SpaceX still faces the challenges of establishing a longer public-market track record and allowing investors to determine an appropriate valuation.

I would not interpret one disappointing trading session as evidence that its business is weakening. Equally, strong earnings should not automatically make the stock attractive at every price.

What I Will Be Watching Next

Three things matter more to me than the daily share price movements:

1. Revenue quality: Are AI-related revenues recurring and supported by sustainable customer demand?

2. Capital efficiency: Are companies generating sufficient returns from their growing infrastructure investments?

3. Free cash flow: Can businesses continue investing heavily in AI without putting pressure on their financial flexibility?

These measures will help distinguish companies that are genuinely benefiting from AI adoption from those that are simply spending heavily to remain competitive.

My Take

I remain positive about the long-term AI opportunity, but I think the market is becoming more selective.

The first phase of the AI rally rewarded companies announcing ambitious investment plans and securing large infrastructure contracts.

The next phase may reward companies that demonstrate they can turn those investments into sustainable earnings and cash flow.

SpaceX has provided an encouraging example, but its share-price decline also shows that even strong results cannot escape valuation pressure and broader market sentiment.

For investors, this may be a good time to look beyond headline revenue growth and examine what remains after all the investment spending.

For discussion purposes only.