VIDEO: Why SpaceX Is Falling Despite Earnings Beat

SpaceX (SPCX), AMD (AMD) and Palantir (PLTR) all reported earnings this week — and the market’s reaction wasn’t what you’d expect from three beats.

TheStreet Pro’s Chris Versace joined Julie Gillespie at TipRanks to break down SpaceX’s ballooning capex and Starlink spectrum concerns, why AMD’s stock fell despite raising guidance above consensus and the one Palantir metric that matters more than the headline numbers.

Plus: The S&P 500’s fresh high against a “Greed” reading, the Iran/oil situation and this week’s jobs data that could shape the Fed’s next move. Chris also called out upcoming retail earnings as a litmus test for the market.

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At the time of publication, TheStreet Pro was long PLTR.

Transcript

Julie G

Hey everyone, it’s Julie with TipRanks, and once again I’m joined by Chris Versace from TheStreet Pro to dive into all things happening in the stock market this week. Chris, pleasure to see you today.

Chris Versace

Always happy to see you, Julie. And what a week, my friend — what a week!

Julie G

I know, we have a lot to talk about. We’re in the thick of Q2 earnings season, and this week alone gave us SpaceX’s first-ever public earnings report, a surprising AMD sell-off despite a beat, and a blowout Palantir quarter. And we’re up against a backdrop of a four-day S&P 500 rally, renewed record highs, and a very fluid U.S.-Iran situation. So we’re diving into all of that, starting with SpaceX. This was their first quarter as a public company. Revenue nearly doubled and losses narrowed, but their CapEx ballooned to over $18 billion from $2.83 billion a year ago, and their CFO, Brett Johnson, said their spending is staying elevated for the next couple of quarters. Now, you flagged CapEx and cash flow as the things to watch heading into this earnings report. How did the market’s reaction live up to what you expected?

Chris Versace

Well, first things first, Julie: no company is going to come public and deliver a big miss relative to market expectations right out of the gate. So I wasn’t really concerned about revenue or EPS for the quarter. But you’re correct that I was far more concerned about rising CapEx levels and cash flow levels. Why? Because when you juxtapose Meta’s core results and higher CapEx against those of Google, Microsoft, and even Amazon, it raises questions not only about the size of the CapEx ramp, but about how they’re increasingly going to afford it. It doesn’t take a genius to flip through SpaceX’s S-1 filing and understand that they’re burning a lot of cash, and to the extent they continue investing at an even more accelerated rate, they’re going to need more of it. So I think that’s why the market is reacting the way it is — by that I mean SpaceX shares selling off.

But I’d also go a little deeper on this, Julie, because it’s not just the ramp in AI and data center capacity that we’re seeing at the hyperscalers. Remember, SpaceX, through Starlink, confirmed what a lot of people expected: that they’re going to leverage Starlink to go after more traditional wireless and wireless data service. That means they have to build there as well. So I think it’s going to be several quarters, possibly more, until we get a real handle on positive cash flow, and maybe even free cash flow, at SpaceX.

Julie G

That brings me to my next question. I’d say the detail that’s getting less attention is that they may need to acquire more spectrum for their Starlink mobile ambitions. You noted that this could raise competitive concerns for AT&T, Verizon, and the like. How seriously should investors in those names be taking this?

Chris Versace

It’s a great question, because in this current market environment, fear and headlines are driving a lot of the initial reactions. If you take SpaceX’s comments about spectrum, it’s going to take time — so is it a near-term threat? Probably not, but it’s one we’re going to have to closely monitor, not just for the wireless incumbents we just talked about, but also for key companies that benefit from that supply chain and other parts of the ecosystem, like American Tower and Crown Castle. And remember, it’s not just SpaceX — Amazon, with Amazon Leo, is probably going to be on a similar path. When you layer those together, that landscape is potentially changing for the wireless incumbents. I think it’s going to be something to watch, and it will candidly raise a lot more questions in the near term about their viability.

Julie G

Sure. And another thing Elon Musk said is that SpaceX is building exclusively on NVIDIA because the Vera Rubin architecture is the best available. Now, you wrote in your article that this reinforces NVIDIA’s competitive position. Does that comment functionally close the door for AMD or other custom silicon players to get a piece of SpaceX’s AI business, or is “exclusively” doing a bit too much work right now?

Chris Versace

No, I don’t think so at all. I think we have to step back and say, okay, they have a special relationship, but there are rising hyperscaler CapEx dollars from others as well. We don’t really lump SpaceX in with the hyperscalers — maybe one day we will — but there are others out there, the neoclouds and the like. I think what you’re seeing is a rising tide that lifts multiple boats. Obviously NVIDIA and SpaceX have that relationship, but there are other spending dollars flowing too. At the same time, not every application demands bleeding-edge compute, so as companies look to balance their CapEx and their workloads, we’re going to see different levels of chips used for different workloads. That’s why I continue to be very bullish on the prospects for Broadcom and Marvell, as well as NVIDIA.

Julie G

Moving on to AMD, who also just reported: they guided Q3 revenue to $13 billion, ahead of the $12.5 billion consensus, yet the stock fell anyway. You pointed to two things — that some Street estimates were well north of $13 billion, and that the stock had already run up 20% into the print, which raised the bar. Which of those two things do you think mattered more, and does that make this look more like a valuation reset than a real concern about the business?

Chris Versace

I don’t think there’s a lot of concern about the business. When you look at the guidance they gave — particularly for data center, this year and next year — it’s going to double by next year. So I don’t think that’s it. I think, once again, expectations were likely ahead of themselves because of the run-up in the stock price. When we see that during earnings season, it really means a company needs to deliver not just a beat for the reported quarter, but clear not only the consensus number, but increasingly the higher-end expectations that are out there. So the sell-off we’re seeing — I have to do a little more homework to determine whether this is something worth picking up. I also have to be mindful of the portfolio’s exposure to NVIDIA, Broadcom, Marvell, and some others in the AI data center food chain. But for folks who are owners of AMD, I’m not saying you should throw in the towel.

Julie G

Following the SpaceX and NVIDIA comment, does AMD’s post-earnings drop, coming right alongside Musk’s quote, tell us anything about how investors are currently ranking the AI chip players?

Chris Versace

It’s interesting, because if you trace the move in AMD shares relative to the similar move year-to-date in NVIDIA shares, you’d say just the opposite — the market is really voting with AMD. I think this was a nice shot in the arm that validates NVIDIA’s competitive position. I don’t think it necessarily takes much away from AMD, especially given my comments about the overall rising CapEx dollars and a rising tide, at least for the near term.

Julie G

Perfect. Now on to Palantir. They raised their full-year operating income guidance to $4.89 billion to $4.91 billion. Karp called U.S. commercial demand “staggering,” up 149% year-over-year to $764 million, beating the $716 million estimate by a good bit. Of all the numbers in that report, you called out U.S. commercial remaining deal value as the single most important metric. What’s the headline there?

Chris Versace

When we think about the future of the business — and by that I mean the next several quarters — whether it’s Palantir or any other company we’re invested in or contemplating for the portfolio, we always like to see escalation in backlog numbers, total contract value, or remaining performance obligations, because they give us greater confidence in the visibility ahead. So it’s not just a Palantir thing. The fact that Palantir put up such big numbers obviously adds to our favorable outlook for the shares.

But I’ll also tell you, Julie, that we continue to monitor rising AI adoption and expanding usage metrics wherever we can find them, across various sectors, and they all point to further growth. That’s why, back in June, when Palantir got hit hard, we actually added to our position around $107. And coming out of the hyperscalers’ quarterly results over the last two weeks, when you look at the rise in their cloud businesses and understand where Palantir is positioned across them, we became increasingly comfortable and confident. The numbers they put up are really a testament to how quickly the enterprise is adopting AI to drive greater productivity and savings.

But I’ll also say that given more than a 50% move in Palantir shares from that late-June pickup to yesterday, we also prudently locked in a pretty hefty double-digit gain for the portfolio. We didn’t sell all our Palantir, because we’re still bullish, but the message to your viewers is that you have to be disciplined as an investor. You have to take profits when and where it makes sense.

Julie G

Before we zoom out to the broader market, I want to touch on the Pro Portfolio, since it does include a lot of the names we just mentioned — NVIDIA, Palantir, Broadcom, Marvell — and TheStreet Pro’s portfolio has kept its lead over the S&P 500 through a pretty wild stretch in the market. How much of that outperformance is coming from the AI trade specifically, versus value-picking stocks elsewhere? What do you attribute that outperformance to?

Chris Versace

I’d say it’s a combination of both, Julie. We’ve purposely built up our exposure over time to the AI and data center trade — you mentioned a bunch of the names — but we’ve also taken profits in those names, most notably Marvell earlier this year. And again, just like my comment about Palantir, we used the big pullback over the last four to six weeks, maybe a little more, to start rebuilding the portfolio’s position. So it’s always great to be able to do that.

At the same time, we’ve taken some of the profits we’ve locked in from these trades and started to expand the portfolio into other parts of the market. For example, in the last several weeks we started and increased our position in Boeing, which is performing very nicely, as well as heavy-duty truck manufacturer PACCAR. One of our more recent additions, earlier this week, was in a homebuilding play — not a homebuilder, but one that serves them: Builders FirstSource.

Julie G

Very good. Now we’re going to quickly go through the broader market, because it’s always interesting these days. The S&P 500 just hit fresh all-time highs, and the Fear & Greed Index is back to “greed” after the recent four-day rally. You’ve noted that this combination could leave some room for disappointment. So what would actually trigger that disappointment from here — earnings-related, macro, geopolitical?

Chris Versace

All of the above. You have to remember, we’re still in the thick of earnings season, but fairly soon it’s going to pivot and become retailer-centric, and then we’ll see where the rubber hits the road with consumers. The fact that McDonald’s yesterday came up short on their comp sales numbers reaffirms that consumers are being increasingly finicky and choosing more mindfully where they’re spending. That’s part of the reason I’m looking forward to Costco’s July sales report, which will be out after the close later today — I think that’ll give us more insight into the consumer.

Also remember, earlier this year we heard from Chinese companies that they were raising prices ahead of the buildup for the holiday shopping season, so we’re going to have to watch retailer margins as well. There’s also — and I say this a bit cheekily — the deal, no-deal situation between the U.S. and Iran. I’ve been pretty adamant over the last several months that if we do get a “deal,” the questions are: what’s the duration of the deal, and what are the details? This time around, it sounds like another 60-day window. But given the run-up in the market, it’s entirely possible that unless we get a very good deal — with the Strait of Hormuz open in perpetuity, no fees, no tolls — that might leave the market a little wanting, especially given the huge market run and the fact that we’re back in “greed.” As Warren Buffett said, be fearful when others are greedy, and greedy when others are fearful. So there is definitely some room for disappointment.

Julie G

Absolutely. And this week’s data includes ADP employment, the ISM Services PMI, and Friday’s jobs report, which will shape the Fed’s conversation. What data point are you watching closest this week?

Chris Versace

Of the three, the labor market appears to be holding up, even though the ADP number was a little weaker than expected. So for me, that makes it really the ISM Services report, which came out — and yes, services picked up a little bit, orders picked up as well, but the inflation number ticked a little higher. Because of the way GDP and other data are computed, we weight the services index a bit more than the ISM Manufacturing Index. The counterbalance is that the services price component ticked higher while the manufacturing price component ticked a little lower. Net-net, that tells us inflation pressures probably flattened out compared to June — not really something we want to see.

Julie G

Perfect. All right, Chris, as always, I appreciate your insights. I know it was a lot to cover today, and I’ll see you back in a couple of weeks, when I’m sure we’ll have plenty more to discuss. Thank you so much for your time.

Chris Versace

Anytime, Julie. Thank you.