Those following Space Exploration Technologies/SpaceX (NASDAQ:SPCX) shares would have noticed they fell sharply after Democrats won Congress in the US midterms.
That’s to be expected, considering Elon Musk’s close ties with Donald Trump and the Republican Party. But the dip didn’t last long.
They have since rebounded almost 15% to erase all the election-related losses. So what’s the deal, and was the political risk overstated? I decided to find out.
More than just Musk?
The losses were likely driven by fears of greater scrutiny of Musk’s businesses and tighter regulation. Democrats also won Texas’ governorship and state House, raising concerns that data centre approvals could become harder.
That matters because SpaceX’s reported $24bn Starbase data centre and gas-power project underpins its AI-infrastructure ambitions.
The move reflected not merely anti-Musk sentiment, but a reassessment of a capital-intensive growth plan.
Water is the real issue
Data centres need electricity, land, cooling and water. In drought-prone regions, water use can become a genuine planning issue.
Texas governor-elect Gina Hinojosa campaigned on halting new data centre approvals until stronger water-use protections are introduced. She has said she wants a moratorium on approvals until laws protect Texans.
That means permitting is now a key operational risk for SpaceX, closely tied to politics, environmental concerns and resource constraints.
So why did the shares recover?
Institutional interest
Not everyone was scared off by the election result. Strong buying from Cathie Wood’s ARK Invest added roughly $96m of SpaceX shares across three of its funds.
Analysts also pushed back against the idea that the election result fundamentally damaged the business. Deutsche Bank downplayed fears of political retaliation, noting that SpaceX’s federal launch and satellite work is largely with executive agencies such as NASA.
In my opinion, this was a short-lived panic sell driven by a small number of investors. The dip seems to have been quickly capitalised on by larger institutions with more conviction.
Results help, but risks remain
SpaceX’s Q3 2026 results support that view: revenue reached $14.6bn, up 161% year on year, while net income was $4.4bn. Starlink had 13.6m consumer subscribers, up from 7.2m a year earlier.
But that doesn’t eradicate risk. The company remains a high-expectation business, with a valuation that already assumes Starlink, Starship and AI infrastructure will deliver substantial growth.
Data centre approvals need to go ahead without delay, while Starlink subscriptions continue to grow and launch capability improves. Investors will be watching closely, so any slip-up could quickly reverse recent gains.
What I’d watch
The recovery’s encouraging, but political events alone shouldn’t drive investment decisions. The next move may depend less on Washington and more on water in Texas.
SpaceX remains a solid AI play that’s worth considering, but I’d watch whether future plans clear permitting and tax-incentive hurdles. I’d also watch Starlink’s subscriber growth, Starship launches and whether the AI-computing business can convert investment into sustainable profits.
For UK investors looking for exposure to the stock without the direct risk, funds such as Scottish Mortgage or Baillie Gifford US Growth include it within a broadly diversified portfolio.
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Mark Hartley owns shares in Scottish Mortgage Investment Trust.
This story originally appeared on Motley Fool
