SpaceX Has Nosedived 50% From Its All-Time High, and It May Realistically Lose Another 50% Before Its Valuation Makes Any Sense

On June 12, Elon Musk's artificial intelligence (AI) and space infrastructure conglomerate rewrote Wall Street's record books. Including the underwriters' overallotment, Space Exploration Technologies (SpaceX) (NASDAQ: SPCX) raised $85.7 billion and vaulted to a valuation of nearly $3 trillion just days after its initial public offering (IPO).

But this initial buzz has quickly faded. Since peaking at $225.64 per share on June 16, SpaceX shares have plunged roughly 50% to $113.

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Thus far, SpaceX is par for the course. However, history suggests that things may get considerably worse before they have any chance of turning around. Image source: Getty Images.

SpaceX's IPO-mania has faded away Aside from the buzz of going public, SpaceX's stock was initially driven by newly amended rules that allowed for its early inclusion in the Nasdaq-100, Russell 1000, and Russell 3000. Investors piled in with the expectation that passive/index funds would spend tens of billions of dollars purchasing SpaceX shares. Unfortunately, reality is beginning to set in.

Musk's trillion-dollar AI and space giant is set to report its quarterly operating results on Aug. 4. While AI start-up xAI has landed a few notable compute deals, SpaceX isn't particularly close to recurring profits, nor has it yet established that its operations are sustainable.

Additionally, some early release-eligible insiders (high-ranking executives, board members, and early investors) can begin selling some of their shares two trading days after SpaceX reports its quarterly results. SpaceX's accelerated and staggered share unlock schedule may be nothing more than a massive wealth transfer from retail investors to insiders. Valuation concerns are also clearly in the picture.

Even after a 50% drawdown from its all-time high, SpaceX is trading at an estimated 38 times forecast sales this year. No company at the forefront of any game-changing trend (let alone two: AI and the space economy) has ever sustained a price-to-sales ratio above 30 for any considerable period. Image source: Getty Images.

Historical precedent suggests SpaceX can lose another 50% Story Continues However, history might just be the most glaring issue for SpaceX. Although AI is the hottest technological trend since the advent and proliferation of the internet in the mid-1990s, we've witnessed every next-big-thing technology for more than three decades navigate a bubble-bursting event. This is to say that investors have persistently overshot the adoption and/or optimization timeline of every game-changing technology for decades -- and there's no reason to believe AI is an exception.

SpaceX securing significant compute deals from Alphabet and Anthropic demonstrates that AI doesn't have an adoption issue. But we're likely several years away from businesses optimizing AI solutions to boost their sales and profits. It took until after the dot-com bubble burst before internet-driven companies understood how to maximize this technology, and AI is likely on a similar path.

According to SpaceX's prospectus, xAI represents 93% of its estimated $28.5 trillion addressable market. If the AI bubble bursts, as history suggests it will, SpaceX will have little in the way of a foundation to fall back on.

Based on history, SpaceX could realistically lose another 50% before its valuation even comes close to making sense. Should you buy stock in Space Exploration Technologies right now? Before you buy stock in Space Exploration Technologies, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now…

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Sean Williams has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Truist Financial. The Motley