RBBN

Elon Musk had a warning for the artificial intelligence (AI) cloud industry on Sunday. In a post on X, the CEO of SpaceX (SPCX -0.40%) wrote debt markets have mostly stopped lending to companies without sizable revenue beyond AI data centers. He predicted that most of the more than 200 so-called neoclouds (companies that rent out computing power for AI) will fail or get absorbed by others.

Musk also said SpaceX had closed $40 billion in debt to buy graphics processing units (GPUs), and he credited the company's investment-grade credit and the revenue from its Starlink internet and launch businesses.

I think the warning is a fair worry for SpaceX shareholders, because SpaceX rents out lots of AI computing power itself. Its super intelligence segment generated $7.56 billion of the company's $14.58 billion in third-quarter revenue.

And the stock, at around $147 as of this writing, is down about 30% from its June 16 closing high of $211.39.

Does Musk's warning make SpaceX stock a sell?

Elon Musk. Image source: The White House.

AI's rising share

Showing how fast the business has shifted toward AI, super intelligence revenue rose from $818 million in the first three months of 2026 to $2.56 billion in the second quarter, then $7.56 billion in the third. This made the AI unit around 52% of SpaceX's total sales, up from about a third in the second quarter.

Part of that revenue is from SpaceX's own products, like its Grok AI models and Cursor, the coding-software company it bought. But a big chunk looks a lot like the neocloud business.

On SpaceX's third-quarter earnings call, Musk said the aim is to use around half its computing capacity in-house and rent the other half to others, at "effectively the spot-market rate" rather than through long-term deals.

The AI unit is also where most of the spending goes. It took $16.4 billion of SpaceX's $19.6 billion in third-quarter capital expenditures.

Starlink makes SpaceX a different borrower

What separates SpaceX from the firms Musk described is the rest of its business. Not only did SpaceX's connectivity segment, which includes Starlink, grow revenue 69% year over year to $5.25 billion in the third quarter, but its operating income also almost doubled from $1.19 billion a year before to $2.37 billion. The space segment, which includes launch, added another $1.77 billion in revenue. That means SpaceX took in around $7 billion last quarter that had nothing to do with renting out chips.

All three major credit-rating agencies gave SpaceX investment-grade ratings in June, and Moody's named Starlink as the company's main source of cash flow.

Also, the AI unit itself looks to have turned around. The segment lost $2.47 billion at the operating level in the first quarter of this year, and that loss fell to $1.26 billion in the second. Then, in the third quarter, the segment made $431 million -- even after $1.2 billion in stock-based pay linked to the Cursor deal.

Spending is set to almost double

Of course, a profitable quarter doesn't make SpaceX cheap to run. Management's forecast for fourth-quarter capital spending is $35 billion to $40 billion, about double the third quarter's total. Bret Johnsen, SpaceX's CFO, told investors on the call that new computing deployments are paying for themselves in under a year at current pricing.

And Musk said the GPUs bought with the new debt should come in the first half of 2027.

But that payback relies on rental prices staying high, and that's the part of Musk's prediction I'd watch most closely. A wave of neocloud failures might leave SpaceX with fewer rivals for its rented capacity. Still, it could also put used GPUs from failed firms back on the market. And because SpaceX prices its rentals near spot rates, its revenue might feel that quickly.

Even 30% under its peak, SpaceX trades at around 34 times sales, using annualized third-quarter revenue. The market is probably already betting on this spending paying off.

I don't think Musk's warning makes SpaceX stock a sell. The neoclouds he described have little revenue outside AI data centers, but SpaceX has Starlink and launch revenue backing its investment-grade credit, plus an AI unit that just turned a profit.

A credit squeeze that locks out smaller rivals might arguably help SpaceX more than it hurts.

This doesn't make the stock a bargain at today's price. But what would change my mind is SpaceX's short-term rental contracts starting to renew at lower prices.