AI IPOs: How SpaceX Would Like You To Hold Their Dynamite Sticks For A While

A Q&A on the largest IPOs in history.

[Before we start, let me just say that if the Knicks can do what they did last night—pull off the largest comeback in NBA Finals history—then surely we can defeat Trumpian corruption. If ever there was a clear sign that those of us who want to take back our country should never give up, this was it.]

As you’ve probably heard, three big AI companies (and one with a side hustle in rockets) are going public soon, starting with SpaceX tomorrow, followed at some point by OpenAI and Anthropic. Among the headline grabbing numbers, SpaceX is targeting a valuation of $1.7 trillion, or over 5% of US GDP. The other two market caps are expected to be in the $1t neighborhood. Put them together and you get an otherworldly sum of ~$3.7t, about France’s GDP. Suffice it say, we’re in unprecedented territory.

Here’s a Q&A, starting with what I suspect a lot of normal people are thinking.

Q: This sounds bonkers. Is it?

A: Let me answer that two ways. First, yes. These valuations seem are stretched, to put it politely. These companies, including SpaceX, have yet to show anything close to a successful model of profitability that would justify these magnitudes. I stick by my and Ryan C’s bubble assessment from last Oct.

I strongly recommend this recent take by Aaron Zamost on hype-inflated asset prices. After going through a list of Musk’s outsized promises, he writes:

Mr. Musk could well believe his own projections. What’s harder to understand is why so many investors do, given his recent track record of missed deadlines, abandoned products and failed business predictions.

Remember, Mr. Musk said he would nearly triple Twitter’s advertising revenue in five years. (It’s down approximately a third.) He claimed the Boring Company, then a SpaceX subsidiary, had received “verbal” government approval for a superspeed hyperloop that would take you from New York to Washington in 29 minutes. (The plan went nowhere.) He said Tesla’s Cybertruck could operate “briefly” like a boat. (A driver had to abandon his vehicle in a lake.)

But I want to be honest with you: Despite my bubble prediction—and sticking with honesty, it’s easy to say “bubble!” and much harder to say when it will burst—I remain invested, happily but nervously, in tech stocks. More on that in a moment, but I’m not exactly putting my money where my big mouth is.

And then there’s this: AI is amazing, and the flood of capital expenditures on hyperscalers, hardware, and datacenters is real and global (i.e., their investments aren’t just driving up US markets; they’re boosting global commerce). The potential for this technology to significantly boost productivity, growth, incomes, and wealth is real, as is that of disruption and job loss.

Moreover, whose income and wealth are we talkin’ about? The economic consensus re growth, jobs, productivity is fraught with deep uncertainty, ranging from meh to hugely transformative. But I’m confident that AI’s market structure will significantly boost our already highly elevated wealth concentration. I mean, that’s already underway!

Bottom line, like all market speculation, these valuations are bets. The problem is that they’re huge bets and I’m concerned that at some point, a lot of investor money will go up in smoke. There’s always hype, there’s always uncertainty. But with AI and Musk and the rest of these tech oligarchs, the hype and the uncertainty are on megadoses of steroids.

I’m not discounting AI’s potential, but let’s check in with the real world. In an economy wherein recent recessions (not the COVID one, of course) have been driven by the implosion of unfettered, un-guard-railed, financial speculation, you’ve got to be worried about who gets caught in the blast radius when this bubble deflates.

Which brings me to…:

Q: What’s this about SpaceX’s new shares finding their way into innocent bystanders’ retirement accounts??

A: This is important. It gets to the thing I always try to get to in these analyses: political economy, power, at how that impacts the rest of us.

SpaceX—and the others can’t be far behind—is throwing its soon-to-be-even-more-pumped-up weight to be listed on public stock indexes way earlier than normal (my bold):

A new provision at Nasdaq will inflate SpaceX’s weight in the Nasdaq 100, effectively compelling some index funds to triple their buying of the stock. Several index providers will “fast track” giant IPOs, adding them to major benchmarks after as few as five trading days instead of waiting for a “seasoning period” of up to one year—although smaller companies may not be eligible.

I strongly agree with this guy:

A broad-based index fund is “supposed to be the designated driver at the investment party, and just as the party is getting wild, that’s exactly when the designated driver says, ‘Here’s the ginger ale,’” says Steven Schoenfeld, CEO of MarketVector Indexes. “But now what some index providers are saying is, ‘I think you need a Cuba libre with a double shot of rum.’”

Yes, you can try to rearrange your retirement accounts to ringfence this stuff, but good luck with that. These tech bros are using their immense market clout to jam these potentially volatile and heretofore profitless assets into millions of retirement accounts, vitiating, as Schoenfeld says above, the staid purpose of broad index funds. And remember, these funds typically allocate shares based on market-cap weights, meaning we’re decidedly not talking about marginal investments.

Q: So, since they’re jamming this stuff down our throats, shouldn’t we listen to Bernie, not to mention Trump, and take equity shares in these companies for all Americans?

A: I see the appeal, but…No! That’s the point above re the index funds. Read Dean Baker for the details. There’s too much hype, too much inflated valuations, too much power, too much cozying up with Trump in the Oval. Again, I truly believe that AI has the potential to, in some way at some point, transform economic production. But at this point, I view these takings ideas—which, ftr, are often supported by the tech oligarchs themselves—to be way too close to the roadrunner handing the coyote a stick of dynamite to hold.

Q: So, you just want to passively watch all this transpire? Shouldn’t we do something about it??

A: I don’t want Trump or the American population writ large involuntarily owning these companies, but I very much want to tax them. Whether it’s the data centers imposing rate spillovers on nearby communities or billionaires from any sector accumulating unheard of piles of wealth that’s by definition escaping taxation—virtually all wealth holdings are currently out-of-reach of our tax system—these people must be held accountable for paying their fair share.

In coming days, I’ll have a lot more to say about this. I firmly believe there’s a path forward, and while politics—specifically, money in politics—creates high barriers along that path, the fomenting anger of the electorate at these developments can and must be tapped to blow through those barriers. Remember the Knicks, readers! We’ve got power too! I don’t care if you’re down 29 points! Never give up!

For now, beware of the hyperscaled IPOs, the index-fund exposure, and the tech bros offering us sticks of dynamite to hold.