Stock Market Today: SpaceX Stock Slumps as AI Spending Rattles Investors

 Stock Market Today: SpaceX Stock Slumps as AI Spending Rattles Investors

**Dow opens higher, extending 1,600-point rally this week as falling oil prices and hopes of a Hormuz deal fuel optimism, but the AI trade faces a fresh reckoning after SpaceX's first post-IPO earnings report.**

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## The Divergence: Dow Rallies, SpaceX Tumbles

Wall Street began Wednesday with a clear divergence . The Dow Jones Industrial Average opened higher, extending a powerful **1,600-point rally** since Monday, fueled by falling oil prices and optimism over a potential diplomatic breakthrough in the Middle East .

But the good news didn't extend to AI-related stocks. **SpaceX (SPCX) tumbled nearly 7%** in early trading after reporting its first quarterly results as a public company, as investors focused on the company's massive AI spending and its impact on free cash flow .

The contrasting moves reflect the two forces shaping the market: a surge of optimism over geopolitics and a growing unease about the sustainability of AI infrastructure spending .

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## SpaceX's Earnings Debut: A Reality Check on AI Spending

SpaceX reported quarterly earnings for the first time as a public company on Tuesday, and the numbers were mixed .

**Revenue** came in at $6.8 billion, ahead of the $6.7 billion consensus . **Adjusted earnings per share of $0.05** were a pleasant surprise, beating expectations of a $0.21 loss .

**But the headline was free cash flow.** The company posted a **negative $6.3 billion** in free cash flow for the quarter—a figure that makes the stock's 40% decline since its June IPO look less like a buying opportunity and more like a repricing of risk .

The stock sold off hard in after-hours trading Tuesday and continued its slide Wednesday, shedding another 2-3% in early trading .

## The Contrast: Meta's Strong Earnings in a Weak AI Market

Meta's earnings report on July 29 was the opposite of SpaceX's in both narrative and market reaction. Meta beat estimates, but the stock dropped 10% after hours on concerns about its AI spending. Microsoft, by contrast, kept its capex guidance flat and saw its stock soar.

Meta's stock is now down 10.5% over five days, 14.7% year-to-date, and a staggering 38% from its 52-week high . The company, which had delivered a strong beat on the top and bottom line, was punished for what the market saw as a lack of clarity on ROI .

## The Great AI Rotation

The market is in the midst of a seismic shift. According to Goldman Sachs, hedge funds have been aggressively rotating out of tech stocks in the longest streak of selling in nearly three years .

**The rotation is not just about a handful of stocks.** U.S. equities experienced the largest weekly inflows since May as money poured into value, growth, and large-cap stocks . Small caps and value funds enjoyed their largest inflows in years .

The Philadelphia Semiconductor Index has tumbled roughly 30% from its June peak, while the equally weighted S&P 500 is outperforming the benchmark index for the first time in years .

## The Hormuz Halo: Oil Prices Plunge, Markets Cheer

A potential diplomatic breakthrough over the Strait of Hormuz is the primary catalyst for the Dow's 1,600-point rally this week .

The U.S. and Iran are reportedly close to a deal that would reopen the narrow waterway, through which roughly one-fifth of the world's oil passes . The news sent Brent crude oil tumbling more than 8% this week, falling to its lowest levels since March .

The collapse in oil prices provides significant relief for consumers and a tailwind for the Dow and other value-oriented stocks, as it eases inflation fears and reduces the likelihood of further Fed rate hikes .

## The Fed Factor: Warsh's Hawkish Dilemma

The downturn in oil prices creates a more favorable backdrop for the Federal Reserve . Chair Kevin Warsh, under pressure to prove his independence from the president, has to weigh whether the easing of price pressures is enough to keep him from raising rates.

However, the market is not entirely convinced. Traders are pricing in roughly a 70% chance of a September rate hike, and three Fed officials dissented at the July meeting in favor of a hike .

## What to Watch Next

- **The Hormuz Deal:** The market is priced for a near-term breakthrough. Any setback would trigger a sharp reversal in oil and a pullback in stocks.

- **AI Reassessment:** As more companies report earnings, the market is punishing those without a clear path to AI profitability and rewarding those with disciplined spending, like Microsoft.

- **The Rotation Trade:** The rotation out of tech and into value, small caps, and cyclical sectors is likely to continue. Investors are looking for areas with cleaner valuations and less crowded positioning.

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## Frequently Asked Questions

### Q: Why is the Dow rallying while AI stocks are slumping?

The Dow's 1,600-point rally this week is driven by falling oil prices and optimism around a potential Hormuz deal . AI stocks, meanwhile, are being hit by worries over the sustainability of massive AI spending, as seen in SpaceX's negative free cash flow and Meta's stock slide after its earnings report.

### Q: What happened in SpaceX's first earnings report?

SpaceX reported revenue of $6.8 billion and adjusted EPS of $0.05, beating expectations . However, the company posted negative $6.3 billion in free cash flow, triggering a 7% decline in the stock.

### Q: What is the "rotation trade"?

The rotation trade refers to investors moving money out of technology and AI stocks, which have been the market leaders, and into value, small-cap, and cyclical sectors that offer cleaner valuations and are more sensitive to economic growth.

### Q: What is the likelihood of the Fed raising rates in September?

Traders are pricing in roughly a 70% chance of a September rate hike. The Fed's decision will depend on whether cooling inflation, driven by lower oil prices, is enough to offset persisting concerns.

### Q: Why is the market so focused on the Strait of Hormuz?

The Strait of Hormuz is a narrow waterway through which roughly one-fifth of the world's oil supply passes. A diplomatic breakthrough could flood the market with cheap oil, reduce inflation, and fuel a stock market rally.

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## Disclaimer

**IMPORTANT:** This article is for informational and educational purposes only and does not constitute financial, investment, or trading advice. The information contained herein is based on publicly available sources and reflects the author's understanding as of the publication date. Market conditions, stock prices, and geopolitical developments are subject to rapid change. Past performance is not indicative of future results. You should consult with a qualified financial advisor before making any investment decisions.