By Akash Sriram
August 3 (Reuters) - SpaceX's first earnings report since its record-breaking IPO will provide an early gauge of whether Starlink's profits can sustain the company's rapidly growing spending on AI and space ventures.
Due after the market closes on Tuesday, the results will give SpaceX's limited pool of public investors their first chance to judge whether the financial case behind the company's lofty valuation supports CEO Elon Musk's vision of a powerhouse spanning AI, space and telecommunications.
Musk has pitched AI as SpaceX's future growth engine, with ambitions extending beyond renting compute capacity to other companies to developing frontier models, consumer and enterprise software, and, eventually, data centers in space. But until its AI business and Starship launch operations can stand on their own, Musk plans to use Starlink's profits to bankroll both ventures, a strategy critics argue is unsustainable.
"Starlink is executing beautifully, but it cannot single-handedly fund a $30 billion annualized AI capex program," said Will Rhind, founder and CEO of GraniteShares, an asset manager that offers ETFs tied to SpaceX stock performance.
Analysts expect the AI business to nearly triple to $2.33 billion in the April-June quarter, up sharply from 12.5% growth in the prior quarter, according to LSEG-compiled data. Starlink growth is also expected to accelerate to 52.6% from 31.6%, driven mainly by expansion into more countries.
SpaceX's AI expansion consumed $7.72 billion in the January-March quarter, accounting for about three-quarters of the company's total capital spending. Analysts expect SpaceX to report capital expenses of nearly $14.05 billion in the April-June quarter. Capital spending in the AI segment is expected to surge more than six times to $10.2 billion from the same period last year, according to Visible Alpha data.
SpaceX shares have pulled back sharply since the company's $86 billion IPO in June, as investors questioned whether its lofty valuation of 77 times expected revenue can be justified.
The stock could face additional pressure from the expiry of SpaceX's post-IPO lock-up period starting August 6, which may unleash a wave of insider and early-investor shares on the market.
Investors will also be keen to hear Musk's comments on a potential merger between SpaceX and Tesla after a media report emerged last week that executives at his EV company had been told to prepare for a separation of its China business ahead of a potential deal. Musk dismissed the report as "fake news," but he had previously declined to dismiss the possibility, citing growing overlap between the companies.
COMPUTE REVENUE IN FOCUS
Analysts expect revenue from connectivity (Starlink) of $3.82 billion and operating profit of $1.42 billion in the second quarter ended June 30. In the first quarter, operating profit was $1.19 billion. At the end of March, Starlink had 10.3 million subscribers, roughly double the level a year earlier, though average revenue per user fell nearly 25%.
SpaceX has signed AI compute agreements with customers including Anthropic, Alphabet's Google and Reflection AI, but that may not be enough.
"The key question for investors is whether SpaceX can monetize its AI infrastructure through third-party compute fast enough to offset xAI's extraordinary capital intensity," said Michael Monaghan, portfolio manager of the Founders 100 ETF, which holds SpaceX shares.
MoffettNathanson analyst Julie Zhu expects SpaceX's AI business to generate positive core profit this year, helped by infrastructure agreements, although she said the gains would be tempered by the segment's significantly higher capital spending requirements."This is not going to be a free cash flow story now, soon, or maybe even ever," said Bill Birmingham, managing director at REX Financial, which offers ETFs tied to SpaceX stock.
For the whole company, analysts expect SpaceX to report second-quarter revenue of about $6.93 billion and loss before interest and taxes of $1.55 billion.
STARSHIP REMAINS KEY
Many investors still view Starship as SpaceX's most important asset and the key to Musk's long-term vision, underpinning plans to expand Starlink, land astronauts on the moon for NASA by 2028 and eventually deploy AI-processing satellites in orbit.
Last month, Starship successfully deployed the first upgraded Starlink V3 satellites after its 13th test flight, but the Super Heavy booster fell short of a controlled splashdown.
Analysts expect SpaceX's launch business to generate $871.4 million in second-quarter revenue, while posting an operating loss of $773 million. In the January-March quarter, operating loss surged ninefold from a year earlier, and revenue fell 28.4% to $619 million.
"The progress on Starship is essential for demonstrating to investors that the company is on the desired trajectory," said Micah Walter-Range, a space industry specialist who helped develop the index tracked by the Procure Space ETF.
(Reporting by Akash Sriram in Bengaluru; Editing by Sayantani Ghosh and Anil D'Silva)
