As SpaceX is set to IPO today with a ton of other AI companies set to follow suit in the latter part of the year, the insanely high valuations that these companies are commanding had my head in a tailspin. Just so we are clear, I'm not an AI doomer or a Luddite. I am aware of AI's enormous potential and how it could change a lot of things for the better. That said, potential and present reality are not always the same thing, even more so where financial investment is concerned.
Thanks to the fiat monetary system, we have created an economy that is detached from reality which is mainly fuelled by rent-seeking businesses and money printing. The best description i can use to describe the current monetary system is that of "state directed capitalism", also affectionately known as fascism. I know state directed and capitalism don't belong in the same sentence, but for the sake of argument do bear with me. Most industries and companies wouldn't exist today without government subsidies, government grants, the Fed's quantitative easing programs and government contracts. We used to call this socialism, but i guess that's all changed now. When you add the stock market to that, you now have a racket of monumental proportions that is designed to look like genuine price discovery and decentralized capital allocation that is all market driven, when the opposite is true. The Silicon Valley model of spotting and funding startups from seed investment to IPO, was designed to fuel this very machine where the Fed pumped capital markets are allocating capital through "private players" to companies that align with the current thing as defined by the state. That's not to say, outliers don't exist that may not meet the acceptable criteria at face value, but the fact of the matter is organizations like Wikileaks, Signal and innovations like Bitcoin would never be funded by Silicon Valley VC's without them being compromised and steered away from their original missions. For example, when PayPal was initially founded, the mission was to replace the US dollar but it morphed into something else with each founding round. Of course they had the wrong technical architecture for doing that, but the larger point still stands, but i digress.
SpaceX is set to go public in a few hours at a $1.8T valuation, 100x revenue and with a $5 billion loss on the books. While the idea behind it is grand and magnificent, it unfortunately meets the criteria of companies that wouldn't exist today without state intervention. With a target raise of $75 billion, and with a retail allocation of 30% it seems to me that this valuation is a well orchestrated fiction that has been built on the AI hype, while ignoring the profit-loss fundamentals and even the infrastructure investments required to make the kind of potential AI applications we often hear about in the corporate media, a reality. Retail investors are the exit liquidity and it's hard to say when they will see a REAL ROI that outperforms the money printer.
This isn't investment advice nor am i saying SpaceX will fail, but it's asking a deeper question of what real value is in a manipulated and rent-seeking driven economy. Is this valuation reflective of reality or it's irrational exuberance showing its face again? If you had 10 Bitcoin to invest in the IPO, would you keep your Bitcoin or you would plough it into Spacex? Ask yourself the same the question with regards to Anthropic and OpenAI, as the opportunity cost is the same. In this current fiat economy, finding real businessmen whose companies are growing based on serving a genuine market need at profitable price points has becoming increasingly rare, with capital destruction being the new game in town while sucking on the state's teat. Given that AI has been declared a "national security priority", do you foresee a scenario where genuine capital allocation and price discovery will occur without any state intervention? Who is really paying for the Ai we are using today, is it your $20/month subscription or it's Uncle Sam? My guess is it's the latter, if that is true then who is the real customer that these companies are servicing, you or Uncle Sam?
The point is this, the largest IPO in history, is actually pointing to the making of largest bubble in history. Many retail investors due to being ill-informed and also greedy, are going to pile in directly with their cash or indirectly via their pension funds. This trillion dollar, speculation fuelled bonanza will end once Anthropic and OpenAI join the party and the mother of all crashes will set in. Not immediately, but soon enough for the crash to become the new scapegoat for the missed milestones, in terms of revenue or growth that these companies will likely face. I do hope I'm wrong. That said, don't take my word for it, do your own research and should you end up investing in these companies; all the best.
It doesn't make sense when your premise is that dollars are money. In a world where currency isn't scarce, I would argue that equities (and in some locales real estate) have broadly taken the place of money/savings.
Under this model, the incentives are to issue as much new "money" (shares) as credibly possible. We've seen some of the biggest publicly traded companies be cashflow negative for basically their entire existence, so that's not a part of the credibility evaluation. It's more of "do they have a compelling growth story."
From the banks, to the regulators, to the equity owners, to the lawmakers, virtually everyone involved is incentivized to perpetuate this scheme. I guess I'm not surprised anymore, because in a perverse way, it makes sense for the reality we're living in.
This is a spot on analysis and the stock market is now the new money printer that enables non-bank entities like SpaceX to issue new money
Something that's always worth keeping in mind is that a financial bubble doesn't mean the underlying thesis is wrong.
The dot-com bubble didn't burst because internet commerce was a dumb idea. It burst because many specific applications of internet commerce were badly misvalued.
The uncertainty around valuing SpaceX or AI projects is enormous. I don't think we can even comprehend the upside but we also don't know the probabilities of the different outcomes at all.
If this were a normal market I would agree with you, but if you value a company 100x revenue without any feasible justification as to why, as a rational investor what else do I have to go on? Blind faith? This isn't to say AI is useless or SpaceX will fail, this is really a value question about the distortion of price signals through which we can make intelligent capital allocation decisions.
I get that but also SpaceX isn't anywhere near it's earning potential, so why should I care about that revenue ratio?
If there's a 3% chance of them mining an asteroid containing quadrillions of dollars worth of minerals (of which our solar system has thousands), their current revenue is completely irrelevant to their discounted present value.
If you are willing to bet on these hypotheticals, then definitely the revenue ratio doesn't matter. I personally don't see how we get from where we are to say a $1 trillion in revenue in the next 10 years, not to mention the infrastructure challenges required to put data centres in space. I am not saying it's impossible but the costs of doing so and maintaining it will require billions more before generating any meaningful return.
I don't see it either, which is why I didn't buy in, but the point is that their current revenue isn't at all what people are banking on. It's totally irrelevant compared to the scope of their future potential.
How is this potential being measured with all the funky valuations going on? Is it just trusting Elon? This is the real question for me, because if you recall during the dotcom era, many things were spoken of and some are yet to materialize to this day. Looks more like speculative gambling to me than prudent investing, unless if Elon is sitting on a major discovery that he is yet to share with the world.
Yeah, it's highly speculative, way more so than the dot-com era. We're in totally uncharted water.
I'd say it's more like speculating on sea voyages during the Age of Exploration and people trust Elon at the helm of the ship based on his prior successes.
For their sake, i hope they are right and that they don't get shafted while chasing waterfalls