Are Tech Stocks Rolling Over?

[audreyh1]

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?

I thought SpaceX had opened at $150 on IPO day.

Nevertheless, if tech is rolling over, it’s about time. But I’m afraid it may be wishful thinking on my part. The welcome news of corporations finally realizing that using AI is super expensive and perhaps needs to be used more judiciously in terms of cost/benefit analysis - I’m hoping that will make growth more sustainable instead of all this crazy money throwing and sucking up of shared resources.

Another thing they are also facing headwinds in terms of interest rates. That usually hurts tech.

 

[Zathras]

When a shoe company (AllBirds) announced they were pivoting to an AI infrastructure company (SmartBirds) I decided it may be wisest to steer clear.
AllBirds/SmartBirds

As for orbital data centers, I’ve seen reports of chips being replaced every 1-3 years. This is simple when the data centers is on earth.

Also, heat can’t be removed by conduction or convention.
So radiator fins with coolant is good way to eliminate that heat. This does require smaller, more numerous data centers to do the same work.

Neither of these issues are insurmountable. But they both add complexity and cost.

Data centers in space may work well and profitably. But I don’t think it is the slam dunk some do.

 

[RetiredHappy]

As for orbital data centers, I’ve seen reports of chips being replaced every 1-3 years. This is simple when the data centers is on earth.

Also, heat can’t be removed by conduction or convention.
So radiator fins with coolant is good way to eliminate that heat. This does require smaller, more numerous data centers to do the same work.

Neither of these issues are insurmountable. But they both add complexity and cost.

Data centers in space may work well and profitably. But I don’t think it is the slam dunk some do.

Optimus will be used to make any repairs and replacements. It is frigid cold up there, hence cooling is not an issue.

 

[Qs Laptop]

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.

They had -$0.41 earnings per share with quarter ending 3/31/26.

 

[G-Money]

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.

To be clear, I'm neither for nor against exploring putting data centers into space. From my layperson's perspective, there could be obvious benefit, but nothing is without drawbacks, right? All questions to be answered by those who explore such things for a living.

I think to keep this on topic as it relates to SPCX, those who invested obviously want this potential new frontier to be wildly successful.

 

[RetiredHappy]

I think to keep this on topic as it relates to SPCX, those who invested obviously want this potential new frontier to be wildly successful.

I really don't care one way or the other, with my small $10K investment. I would like to see Musk succeed since he is a genius. If I really believe it will be hugely successful, I would have put in $100K or more.

 

[G-Money]

I thought SpaceX had opened at $150 on IPO day.

It did. And it didn't.

The actual IPO price was $135.

Because Elon successfully bent rules in his favor, the Nasdaq's "fast entry" rule was updated to allow it to be listed on their exchange to retail investors almost immediately. It opened at $150 on the Nasdaq. Other rules were changed, too, including the ability for insider investors to sell shares sooner. It all looks very suspect and scheming, but I'm sure there were totally legit reasons for doing this because it's SPCX, after all.

 

[G-Money]

I really don't care one way or the other, with my small $10K investment. I would like to see Musk succeed since he is a genius. If I really believe it will be hugely successful, I would have put in $100K or more.

Well, why didn't you?

 

[RetiredHappy]

Well, why didn't you?

Huh? Because I don't believe SPCX will be profitable enough to justify the valuation, at least not for another decade. There are lots of buying opportunities up until then. No need to have $100K sitting there to go poof or do nothing for 10 years. Put $100K in FTEC or VGT, let it grow to $200K to $300K, and then buy SPCX if I am still alive then.

 

[joesxm3]

Well, why didn't you?

I only risked $95,000 because I expected it to merge with Telsa and I already have too much TSLA

 

[RetiredHappy]

I only risked $95,000 because I expected it to merge with Telsa and I already have too much TSLA

I paid $4K for my Tesla and it is now valued at about $12K. As a rule, I don't buy individual stocks, and the only stocks that I own now are TSLA and SPCX, which round down to 0% of our portfolio.

 

[Route246]

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.”

Personal feeling is there is too much generalization coupled to too much fanboy worship coupled to too little vision. Here is my personal sentiment:

AI/ML - this is a real industrial revolution that has a long tail reach akin to cellular phones as it will reach deep into the otherwise non-technical people in the entire world the same way cellular phones did. It is also in it's newborn state (not even infancy yet) so things have to shake out and generalizing it to every player in the space just muddles the true impact to society

Things will normalize - I am a firm believer in perfect markets and I believe capital will chase opportunities, smart money will get wealthier and stupid money will go broke, that's the way things work and it is a fool's errand to use stupid money as a reason for criticizing and generalizing against something unknown

Resistance is futile - a bit of a cliche' but the good news is the genie is out of the bottle and nobody, no nation state and no company will be able to control her destiny, the natural order of things will take care of everything, too late to do much planning for control, opportunities will present themselves as capital chases it and new things will be invented. Most people resist change, too late for that, you either change and keep up or you don't change and get left behind and this is most evident in the workplace.

Disruptions are normal, get used to them - the latest one is the memory shortage which is going to increase the prices of consumer electronics like the iPhone but it is a cost of doing business. I firmly believe things will normalize and the really bothersome disruptions are temporary. My major concern is for future generations. I feel the current world will become a rust belt and for those companies and workers who don't see it coming, are too set in their ways to change and are too stubborn to embrace it to remain competitive will just whither away, it was nice knowin' ya.

Enjoy the ride. Things are just starting to heat up. Ignore the noise and start thinking about your investments and what adjustments need to be made. For me, I think my investments will do fine in the long run. Secular bull markets are a repeating pattern. Just be sure to be able to ride out the cyclical bear markets that happen along the way. It's all good. The vast majority of people here have won the game so this all poses little or no threat to us. For our children and grandchildren, a little worrisome, at least that's how I see things.

 

[Qs Laptop]

Here is my personal sentiment:

AI/ML - this is a real industrial revolution that has a long tail reach akin to cellular phones as it will reach deep into the otherwise non-technical people in the entire world the same way cellular phones did. It is also in it's newborn state (not even infancy yet) so things have to shake out and generalizing it to every player in the space just muddles the true impact to society

This is a good analogy. I think AI is about where cell phone adoption was in 2000-2001. People using AI are about where people using cell phones were in 2000. A growing minority of people were using them. They realized they could take photos with their phones. Crappy photos but still, they were pictures. Some people had started texting. Not many, but early adopters were starting to text.

Now consider where cell phones are now. You can take excellent photos, text anyone, use your phone to read the news, book airline tickets, listen to music, play games, etc.

AI had barely gotten started. As you say, it's still in diapers.

 

[joesxm3]

I remember back around 1997 I did a contract programming stint at a company that had this strange new technology running only on their internal LAN. They called it "E-Mail". They used it to send messages to each other. I got in trouble for using it to send the blonde joke of the day.

That was almost as bad as in 1986 when I walked into a big company for an interview and saw this strange Apple computer with some sort of roller device on a cord. It baffled me how it might be used. Sort of the opposite of the Star Trek movie where Scottie tried to talk into the mouse. And her I am today talking to Grok in my Tesla

 

[MichaelB]

if we want an analogy to understand AI, it’s the railroads. They were transformational in a way virtually no one understood or appreciated at the time. The railroad businesses themselves were just a small fraction of the economic value that was created by their use.

Almost all the early investors and rail businesses went under. Lost everything. The infrastructure, though, remained intact and its subsequent use contributed to one of the greatest economic advances in human history.

Whether AI has the same potential to enable a similar step upwards in productivity remains to be seen, but it certainly seems to have that potential. If so, my uneducated guess is it would follow a similar trajectory. The real benefits would accrue to the users, not the providers.

 

[Diogenes]

His "guy" wants him to retail-invest in SPCX and he's thinking about doing it.

I wouldn’t bet against tech long term.

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.

Never follow the advice of a "guy", save for entertainment. The comprehensive remedy for all of the above, is to just hold the market portfolio.

 

[Route246]

This is a good analogy. I think AI is about where cell phone adoption was in 2000-2001. People using AI are about where people using cell phones were in 2000. A growing minority of people were using them. They realized they could take photos with their phones. Crappy photos but still, they were pictures. Some people had started texting. Not many, but early adopters were starting to text.

Now consider where cell phones are now. You can take excellent photos, text anyone, use your phone to read the news, book airline tickets, listen to music, play games, etc.

AI had barely gotten started. As you say, it's still in diapers.

I'm not clear on the years but your points are very well taken. The same type of people who were equating cellular phones to walkie-talkies back then are the same type of people now who are displaying subtle or not so subtle hostility towards AI/ML. People need to put their bell and whistle away, chill and let it play out.

if we want an analogy to understand AI, it’s the railroads. They were transformational in a way virtually no one understood or appreciated at the time. The railroad businesses themselves were just a small fraction of the economic value that was created by their use.

Almost all the early investors and rail businesses went under. The infrastructure, though, remained intact and their subsequent use led to one of the greatest economic advances in human history.

Whether AI has the same potential to enable a similar step upwards in productivity remains to be seen, but it certainly seems to have that potential. If so, my uneducated guess is it would follow a similar trajectory. The real benefits would accrue to the users, not the providers.

Interesting comparison to railroads. One significant asset railroads (and gas pipeline companies) posses are their right-of-ways. Those right-of-ways enabled the expansion of fiber connections meshed throughout the country. Sprint Communications is the poster child for this (The "Sp" in Sprint is Southern Pacific). No data center is ever built without access to fiber and in almost all cases there is a railroad line nearby. Silicon Valley has a huge mesh of mostly abandoned railroad right-of-ways from the cannery and manufacturing days and along those shuttered rail lines and spurs are data centers, mostly built during the dot-com bubble. The AI/ML is leveraging these fiber lines today.

 

[joesxm3]

I agree with MichaelB about the railroad analogy. I had heard it somewhere before. The main idea is that the railroad created industries and opportunities that were not imaginable before the trans-continental railroad. I think AI falls in the same category.

 

[NW-Bound]

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.

Space X always has revenue. However, after expenses the net earning is negative. Because Space X had been a private company prior to the recent IPO, its financial statements were not public.

With the IPO, its S1 filing revealed that its accumulated deficit added up to $41.3 billion since its inception in 2002. That's 24 years ago. This money came from private investors, and they now can get paid with the IPO.

One can say that the $41B over 24 years is an investment for all Space X assets now. Still, at some point it has to have net positive earnings.

When does a fruit tree have to bear fruits? I have 2 grapefruit trees in my backyard. One keeps giving 200 fruits each year. The other 10. Been thinking about chopping the latter down, but my wife keeps saying to give it a chance.

 

[Markola]

My main worry is that is the nose-bleed AI capex-burners lose steam that will affect the pick and shovel stocks…

This is exactly the concern, stated succinctly.

Instead of bottom-up, organic profits from subscription-paying customers driving growth, there is a speculative money funnel at the top of this system driving the growth of everything under it. All is well and profits don’t matter as long as the flow of investment and hype continues from IPOs, capex debt fundraising, or circular deals leveraging the same hot ball of money, same as the railroads and dot coms.

 

[Running_Man]

if we want an analogy to understand AI, it’s the railroads. They were transformational in a way virtually no one understood or appreciated at the time. The railroad businesses themselves were just a small fraction of the economic value that was created by their use.

Almost all the early investors and rail businesses went under. The infrastructure, though, remained intact and their subsequent use led to one of the greatest economic advances in human history.

Whether AI has the same potential to enable a similar step upwards in productivity remains to be seen, but it certainly seems to have that potential. If so, my uneducated guess is it would follow a similar trajectory. The real benefits would accrue to the users, not the providers.

The richest Americans of the railroad era built their fortunes by controlling the infrastructure of a revolutionary technology. Cornelius Vanderbilt became one of the wealthiest Americans in history through railroads. The term “Robber Barons” came from the powerful industrialists who accumulated fortunes by controlling critical systems like rail networks and using their position to influence markets and charge high rates.

Jay Gould used the Erie Railroad, financial manipulation, and strategic control of routes to build enormous wealth. Collis Potter Huntington, who began life with modest means, helped create the Central Pacific Railroad with three partners known as the “Big Four” and died with a fortune that would be worth billions today.

The railroad expansion began in the 1850s. The panic of 1873 exposed the dangers of speculation, excessive investment, and companies rushing into the railroad boom. Construction and expansion continued for decades, until the panic of 1893 revealed that overbuilding, financial manipulation, and unrealistic valuations had created a system where many companies could not survive.

If railroads are the analogy for AI, then we are not at the end of the story — we are closer to the 1850s stage of development.

But there is a major difference: railroads moved goods and people. AI has the potential to influence information, decisions, productivity, and even individual behavior. A technology that can analyze, predict, and influence human choices — while potentially exceeding human capability in many tasks — is a much more powerful form of infrastructure.

The question is not only who uses AI. The bigger question is: who controls it, who sets the rules, and who captures the wealth created by it?

 

[NW-Bound]

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?

How useful is AI, and where and how it can be applied? I don't know. Until the answer becomes obvious, I just know AI is big, and as an investor I want to make money off it.

The OP asked about the near-term profitability of the AI companies. I don't know if anyone knows how they will make money. But everyone can see that they are talking about spending hundreds of billions if not a trillion in a competition to see who can build bigger.

If we look not at the entire S&P but each sector individually, we will see that the hyperscalers with the exception of Google are trailing the S&P YTD. Amazon is barely breaking even, and Microsoft, Oracle, Facebook are badly in the red.

If these big guys are trailing the S&P badly, then who is beating the S&P? Of course, it's the semis. They are the ones building picks and shovels for the hyperscalers to go to war with each other. The semis will win until the hyperscalers run out of money.

Then what? I don't know. I am going along for the ride with the semis, but I am constantly watching out for signs of trouble. As other posters who still remember the 2000 market fiasco, I am determined to be smarter this time. Maybe I will succeed and not getting hurt as badly this time.

 

[Route246]

How useful is AI, and where and how it can be applied? I don't know. Until the answer becomes obvious, I just know AI is big, and as an investor I want to make money off it.

The OP asked about the near-term profitability of the AI companies. I don't know if anyone knows how they will make money. But everyone can see that they are talking about spending hundreds of billions if not a trillion in a competition to see who can build bigger.

If we look not at the entire S&P but each sector individually, we will see that the hyperscalers with the exception of Google are trailing the S&P YTD. Amazon is barely breaking even, and Microsoft, Oracle, Facebook are badly in the red.

If these big guys are trailing the S&P badly, then who is beating the S&P? Of course, it's the semis. They are the ones building picks and shovels for the hyperscalers to go to war with each other. The semis will win until the hyperscalers run out of money.

Then what? I don't know. I am going along for the ride with the semis, but I am constantly watching out for signs of trouble. As other posters who still remember the 2000 market fiasco, I am determined to be smarter this time. Maybe I will succeed and not getting hurt as badly this time.

I have to push back on the bolded part. I follow these names pretty closely because they’re core to my options wheel strategy, and that statement just doesn’t line up with current reality as I see things.

Amazon is clearly profitable at the company level today, and AWS is a major profit engine, not some marginal side business. Microsoft’s cloud segment and the overall company are also solidly profitable. Oracle’s long‑standing database and applications businesses have been good cash generators for years; OCI is still earlier‑stage, but it’s being built on top of a profitable base, and recent earnings calls are about growth and margins, not about the company bleeding red ink. Meta is the only one where you can fairly say a big chunk is “in the red,” but even there it’s specifically Reality Labs/VR/AR that burns cash, while the core Family of Apps is highly profitable and more than covers those losses.

 

[RobLJ]

Amazon is now barely profitable, due to AI capital investment. Will it pay off? Who knows how and when.,
Microsoft, which I own (but made all my money and just let some ride for fun), is spending 160 billion on mostly AI capital investment.
Will it pay off? Who knows how and when.
MichaelB is likely right about the long-term of AI and railroads; most pertinent is the fact that most investors lost their shirts. Another analogy is the fiber optic boom.
My oldest son is working on the huge datacenter for Microsoft/OpenAI outside of Abilene (where ironically I went to undergrad in the '70's). He knows it is a boom that will level off soon, but he's getting paid very well.
The costs to ship to space make me suspect that data centers in space is one of those cool Gibson cyber-punk novel things. Sounds good. But pencil out the shipping costs first, please.

 

[Al18]

"Another analogy is the fiber optic boom."

I bought quite a bit of GLW Corning about a decade ago for $20/share, because it was a good dividend stock. Apple is funding Corning's manufacturing plant to make Gorilla glass in Kentucky, and Corning is the company that makes fiber optic cable. I've been selling some stock for about a year - it's currently $205.83.