Are Tech Stocks Rolling Over?

[Markola]

Despite being hyped to infinity and beyond, SpaceX sits below the launch price of $155. It has no earnings. OpenAI and Anthropic want to go public next. They, too, have no earnings. The massively-successful, low-debt software monopolies are floating debt to keep up with the AI capex race, with no earnings in sight. AI companies are dumping or raising their unlimited monthly subscription price models. Corporate users are dialing back their token budgets. There isn’t enough electricity to power all the data centers, whose construction pace is lagging. Data centers in space are only on the drawing boards.

It wouldn’t matter, except that a small handful of these companies’ stocks drive US stock market returns. What am I missing? If you don’t like my entirely unoriginal outline, what is your bull case instead?

 

[RetiredHappy]

First of all, you are wrong with regards to the "launch" price of SpaceX. IPO price is $135 and not $155. With any IPO, it is up to the investor to bet on whether the company will be hugely successful in the future or not. It is not just tech, but any company.

Secondly, AI profitability is real and it is unlike the burnt rate of dot.com era. Data centers in space are indeed on the drawing boards. Musk himself said that he had a goal of being up there in 2028, but it may take many more years. No one knows whether SpaceX will be profitable or not. Hence, don't bet your farm on it.

 

[Diogenes]

As someone who for decades has been overweight on midcap and small-cap, and has doggedly held ex-US indices, I'd love to see a rotation out of US large-cap big-tech and into... everything else. If we can do so in an orderly way, without panic or taking down the whole market, then I wholeheartedly welcome it. Yes, the Essen Pea Five Hundred would stagnate or even give back some recent gains, but the overall market would consolidate, perhaps relaxing on the P/E a bit.

 

[Markola]

I didn’t bet any part of the farm on it, not even an ear of corn. Thanks for the correction on the price. It commenced trading on Nasdaq at $150, not $155, as I thought I’d read. The first day close was $160.95. At the moment it is $158.07.

My questions remain for the tech sector, however. I believe that at some point investors will demand actual profits.

I’m not convinced yet that AI profitability is real and this is not like the dot.com era. I am open to being convinced.

Companies in the AI ecosystem are feeding off the capex debt raises of the frontier market leaders. Those second order players will remain profitable as long as the capital keeps flowing to the frontier and trickling down to them. I’m not sure how this fizz is different than a venture capital-dependent boom with no actual profits. Musk is impressive but not infallible. He promised that the cybertruck was coming for years and years, then it was a dud. Where are the robotaxis? “Next year.”

 

[G-Money]

Had a similar discussion with dad over Father's Day BBQ.

He thinks "tech" is going to keep going up. His "guy" wants him to retail-invest in SPCX and he's thinking about doing it.

I was trying not to choke on my steak while he told me this.

My dad is a smart man but he's been retired/ out of the workforce for 20 years. The writing is on the wall in a bad way for tech companies and I too think one or two or both things is about to happen. Investors will demand the substance behind some of these valuations. Two, FOMO investments in things like SPCX are going to drive capital away from other major tech players, suppressing tech growth in a major way.

To clarify, IPO for SPCX was $135.
It opened on the Nasdaq at $150.

I'd say the last several days aren't a good showing, but that does not yet make a trend.

I'm happy with our overall portfolio exposure to SPCX at less than 2%.

I'm more worried that much larger exposure to the traditional Mag 7 will drag us down for a while.

 

[Aerides]

First of all, you are wrong with regards to the "launch" price of SpaceX. IPO price is $135 and not $155. With any IPO, it is up to the investor to bet on whether the company will be hugely successful in the future or not. It is not just tech, but any company.

Secondly, AI profitability is real and it is unlike the burnt rate of dot.com era. Data centers in space are indeed on the drawing boards. Musk himself said that he had a goal of being up there in 2028, but it may take many more years. No one knows whether SpaceX will be profitable or not. Hence, don't bet your farm on it.

$135 was the offering. But the actual opening price if you went to buy it on day1 at minute 1, $150. I'm not going to be surprised to see it under $135 by the end of the week either.

And drawing boards mean nothing in tech. We've all been there.

 

[COcheesehead]

I wouldn’t bet against tech long term. The NASDAQ has outperformed the S&P for the last 1/5/10 year periods and in some cases by a lot.
Short term is anybody’s guess.

 

[GrayHare]

Data centers in space (what is the advantage?) makes me think of automobile tailfins that grew and grew until they didn't.

 

[G-Money]

Data centers in space (what is the advantage?) makes me think of automobile tailfins that grew and grew until they didn't.

The obvious answer is the absent need for real estate on earth, and water/cooling. Add limitless/ unobstructed exposure to the sun for solar power.

 

[Qs Laptop]

Despite being hyped to infinity and beyond, SpaceX sits below the launch price of $155. It has no earnings. OpenAI and Anthropic want to go public next. They, too, have no earnings. The massively-successful, low-debt software monopolies are floating debt to keep up with the AI capex race, with no earnings in sight. AI companies are dumping or raising their unlimited monthly subscription price models. Corporate users are dialing back their token budgets. There isn’t enough electricity to power all the data centers, whose construction pace is lagging. Data centers in space are only on the drawing boards.

It wouldn’t matter, except that a small handful of these companies’ stocks drive US stock market returns. What am I missing? If you don’t like my entirely unoriginal outline, what is your bull case instead?

You're right that SpaceX doesn't have any earnings. They hardly have any sales.

Anthropic and OpenAI will go IPO next and they don't have earnings either. The race is on to see which company will be the AI winner when the dust settles. Will it be Anthropic, OpenAI, Google Gemini, Perplexity, Grok, etc? Private investors have poured money into these companies.

Who does have earnings in the AI space? All the companies that supply components to build data centers. The picks and shovels of AI build out. The chip companies, the companies that make the machines that make chips, The server infrastructure companies, etc. etc. The AI companies trying to be #1 are spending private equity and private credit money like it was on fire, ordering components and infrastructure from these picks and shovel companies. Many have multiyear backlogs of orders.

I'd like to see your data showing:
AI companies are dumping or raising their unlimited monthly subscription price models. Corporate users are dialing back their token budgets. There isn’t enough electricity to power all the data centers, whose construction pace is lagging.
Because I'm not seeing it.

Here is the latest analyst's views on Micron's 12 month price target. BTW, Micron reports this afternoon after the bell.

 

[joesxm3]

My main worry is that is the nose-bleed AI capex-burners lose steam that will affect the pick and shovel stocks like MU, TSM. NVDA, VRT, GEV and ETN. I remember back in the dot com era I was laughing when Compaq crashed and overlooked that my stock in the disk drive maker Connor Peripherals was next to the chopping block. I got hammered.

I watched CBRS drop 17% today as the first unlock happened. They have an unlock schedule similar to SPCX.

I started selling my BPTRX on IPO day and the next four days. I sold 40%, but I wish I sold more. I am bullish SPCX long term, but making money on stocks like TSLA and PLTR requires holding your nose and buying when they take a massive dive like PLTR to $7 and TSLA to $128. Buying at the highs is just a recipe for sorrow.

I plan to sell half of my 400 SPCX IPO shares as soon as I can without upsetting Fidelity. I was not expecting to get that many at the IPO allocation. But if I get stuck holding the bag, it will be my contribution to the city on Mars.

 

[RetiredHappy]

I plan to sell half of my 400 SPCX IPO shares as soon as I can without upsetting Fidelity. I was not expecting to get that many at the IPO allocation. But if I get stuck holding the bag, it will be my contribution to the city on Mars.

I have $10K in SPCX IPO. I don't lose sleep if I lose them all and I won't get rich if it goes up 10x.

 

[MRG]

I do not believe we have entered the "trough of disillusionment", yet. There's a lot of room to fall.

I spent a half an hour this morning fighting with Gmail, it was helping me pay a bill to a vendor I don't have a relationship with! Of course it tried to help me rework it and locked the thing.

 

[MichaelB]

You're right that SpaceX doesn't have any earnings. They hardly have any sales.

They had $19B in revenue last year. That’s a lot more than “hardly any”.

They also employ more than 22000 people. This is no simple startup.

I’m not suggesting anything about the valuation of SpaceX, for which I have no opinion. However, it is clearly is an established, ongoing business that is viable.

 

[G-Money]

 

[GrayHare]

The obvious answer is the absent need for real estate on earth, and water/cooling. Add limitless/ unobstructed exposure to the sun for solar power.

Seems obvious to me that data center can also be sited in a desert. That saves the costs of launching things into orbit and maintaining them there.

 

[Qs Laptop]

They had $19B in revenue last year. That’s a lot more than “hardly any”.

They also employ more than 22000 people. This is no simple startup.

I’m not suggesting anything about the valuation of SpaceX, for which I have no opinion. However, it is clearly is an established, ongoing business that is viable.

You're right of course. I should have said that they hardly have any sales relative to their market cap or hardly any sales of what they are proposing to do with the IPO money.

Their price to sales ratio is over 100x.

 

[Qs Laptop]

Seems obvious to me that data center can also be sited in a desert. That saves the costs of launching things into orbit and maintaining them there.

Data centers in the desert? Astronomical air conditioning costs involved.

 

[RetiredHappy]

They are putting alot of data centers in Las Vegas/Henderson Nevada and I read somewhere that Nevada Energy is charging them 120%.

 

[Qs Laptop]

They are putting alot of data centers in Las Vegas/Henderson Nevada and I read somewhere that Nevada Energy is charging them 120%.

Why not have fleets of giant nuclear powered ships with data centers plying the oceans around the poles, using ocean water for cooling?

 

[G-Money]

Seems obvious to me that data center can also be sited in a desert. That saves the costs of launching things into orbit and maintaining them there.

They are already being built in deserts.

Water, cooling, power, and environmental impact, my friend...

Space presents an interesting opportunity and potential savings and impact mitigation.

 

[Dash man]

Why not have fleets of giant nuclear powered ships with data centers plying the oceans around the poles, using ocean water for cooling?

Corrosion from sea water is a real problem.

 

[FD1000]

Are Tech Stocks Rolling Over?​

Next week, next year, in 3-5 years?

My questions remain for the tech sector, however. I believe that at some point investors will demand actual profits. I’m not convinced yet that AI profitability is real and this is not like the dot.com era. I am open to being convinced.

The technology sector has generated enormous profits for decades and continues to be one of the most profitable sectors today. However, you should always do your own due diligence.

You're also mixing different segments of the technology sector together. Technology is not one category—software, semiconductors, hardware, cloud computing, AI, and cybersecurity can perform very differently from one another.

More importantly, strong profits do not guarantee strong stock performance over the next few weeks or months. Stock prices are influenced by many factors, including expectations, valuations, sentiment, and market conditions.

Stocks can gain or lose significant amounts in a relatively short period of time. focus more on the long term. From your question, it sounds like you're more interested in short-term trading.

A friend of mine took a different approach. Around 1990, he selected what he believed were the best companies and invested about $3,000 in each, intending to hold them for more than 30 years. The rest of his money went into an S&P 500 index fund.

Nine of those stocks produced average results and generally underperformed the S&P 500. However, one of them was Microsoft. That single investment grew to more than $1.5 million and more than made up for the others.

As someone who for decades has been overweight on midcap and small-cap, and has doggedly held ex-US indices, I'd love to see a rotation out of US large-cap big-tech and into.

You have missed a lot of performance based on hope. Markets have told you the real story.
SP500 is the easiest index in the world.

 

[threeonesix]

How does SPCX not have earnings when it includes Starlink and xAI, both of which offer monthly subscriptions? I pay SPCX $165 every month for Starlink, as do over 12 million other humans.

 

[oiseux]

They are already being built in deserts.

Water, cooling, power, and environmental impact, my friend...

Space presents an interesting opportunity and potential savings and impact mitigation.

there are several key challenges to this vision, as disclosed in a speech last year and in the IPO. to this vision. Solutions have not all been identified. I am only summarizing what I've read or what I know from a prior life:
* the cost of the number of flights required doesn't make the math work out at the current costs; Even if it is not 1M satellites, it still is a lot and will take a lot of time.
* although improved, lightweight shielding mitigates somewhat (and new materials are being researched), exposure and cosmic radiation are very damaging to CPUs, memory and storage, shortening the life of parts and increasing replacement cycles (and magnifying the launch and disposal problem in space). And memory and especially cache are very subject to single event upsets from particles that can bypass shielding, and it gets more challenging with each generation. And any mitigations will either take new solutions or even more expense.
* inherent latency limits some application, while security and regulatory issues limit others.