Written by: Zhao Ying

SpaceX's stock price continues to decline, having lost over $1 trillion in market value since its peak following the IPO, facing the most severe valuation challenges since going public for the rocket and artificial intelligence giant founded by Elon Musk.

On Friday, SpaceX's stock price fell by 5.4%, closing at $123.99 per share, with a total market value dropping to $1.63 trillion. On June 16, which was the company's third trading day after its IPO, the market value peaked at $2.64 trillion. The immediate trigger for this decline was the failure of the company's flagship rocket Starship to launch due to an engine failure.

The ongoing drop in stock price has pulled SpaceX below its IPO issue price of $135. Joe Gilbert, a portfolio manager at Integrity Asset Management, stated, "The timing of the launch failure is not ideal for the company's narrative, but failure is an inherent risk of that narrative. Investors are reducing their positions, reassessing valuations, optimism is slowly fading, while also compressing previously high valuation multiples."

Starship engine failure triggers sell-off

On Thursday, SpaceX halted the launch after some engines of the Starship rocket failed to ignite. Musk later stated on the X platform that two Raptor engines will be replaced, and the next launch attempt may be delayed until early next week.

SpaceX stated it will attempt to launch again. Raymond James analyst Brian Gesuale noted in a report sent to clients on Friday that even if there is a delay, if the next launch is successful next week, the interval between two Starship flights will be compressed from the previous 221 days to less than 60 days. Gesuale initiated coverage of SpaceX with a "strong buy" rating on July 7, with a target price of $800, the highest on Wall Street, approximately 545% above the closing price on Friday.

Gesuale also emphasized, "Such anomalies will continue to accompany Starship's aggressive R&D process — this is the inevitable cost of breakthroughs in reusability, payload capacity, and accelerating the deployment of Starlink V3 and future NASA Artemis missions."

Starship is a core pillar of SpaceX's commercial landscape

The strategic significance of Starship to SpaceX cannot be underestimated. According to the IPO prospectus released by the company in June, SpaceX has invested over $15 billion in the development of Starship. This rocket is the core vehicle for the company to promote the construction of space data centers, expand the Starlink satellite communication network, and ultimately achieve manned lunar landings and Mars missions.

Clear Street analyst Greg Pendy pointed out, "Any substantial delays in progress will directly impact the scale expansion of Starlink and direct connection mobile services since lower launch costs are crucial for accelerating satellite deployments."

Analysts Ken Herbert and Jonathan Atkin from Royal Bank of Canada believe that the cost savings from Starship will be a key catalyst in unlocking SpaceX's ambitions — including the so-called "orbital computing" business — but also warned that the rhythm of reusable launches is "critical." The two analysts wrote in their report, "We understand that the path to de-risking is non-linear, and we believe investors may also be forced to accept this non-linear rhythm."

Wall Street overall maintains a bullish stance

Despite recent sell-offs, Wall Street’s overall attitude towards SpaceX remains positive. According to Bloomberg tracking, over 80% of analysts give the stock a buy or equivalent rating, with an average target price of $235.34, implying about 90% upside potential from current levels.

However, there are structural pressures in the market. Earlier this month, SpaceX joined the Nasdaq 100 index, and the lock-up period for insider holdings will begin to expire in the coming months, allowing shares to gradually enter the market. Mark Malek, Chief Investment Officer at Siebert Financial, stated, "Considering the gradual lifting of lock-up periods, many investors may have reassessed their initial investment logic, while potential buyers who were previously waiting on the sidelines are looking for better entry points — as valuations gradually return to reasonable ranges, the likelihood of opportunities arising is quite high."

According to the Wall Street Journal, SpaceX is negotiating a sale of computing power to the U.S. Department of Defense, which caused a brief rebound in stock price. The company has similarly agreed with Alphabet's Google and Anthropic PBC.

The ongoing decline in SpaceX stock price poses a potential threat to the current surge in IPOs related to artificial intelligence. AI is a crucial component of this IPO narrative — the company positions space data centers as a strategic pivot to capture a potential market valued at approximately $26.5 trillion. This record-breaking IPO had brought substantial profits to major Wall Street investment banks, boosting equity underwriting revenues to their highest quarterly levels since 2021. Now, as SpaceX's stock price falls below the issue price, concerns are deepening over whether high-valuation tech companies can maintain strong performance after going public.

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