Elon Musk's SpaceX has lost more than a fifth of its value since its stock market debut, with shares falling sharply on the company's first day of inclusion in the Nasdaq index — the very event that had been expected to supercharge demand. The dramatic reversal is drawing fresh scrutiny over whether the broader artificial intelligence investment boom is running out of steam.
SpaceX's Nasdaq debut turns sour
SpaceX entered the Nasdaq index with considerable fanfare, but the anticipated wave of forced buying by index funds — which must adjust their holdings to reflect new index constituents — failed to materialise. Instead, the stock dropped 6.83 per cent on its first day of index inclusion, dragging its total decline from peak to roughly 22 per cent. The company, which had been valued at more than $US2.5 trillion at its height, fell below a $US2 trillion valuation.
Even an avalanche of bullish analyst reports from six of Wall Street's most prominent investment banks couldn't stem the slide. Morgan Stanley's most optimistic scenario places the stock at $US600 per share, implying a market capitalisation exceeding $US8 trillion — a figure that requires investors to price in ventures that exist largely as ambitions, including space-based data centres and the colonisation of Mars.
In debt markets, the picture is similarly troubled. SpaceX's $US25 billion capital raising, initially priced at 1.4 percentage points above US Treasuries, has seen its spread widen to 1.65 percentage points — meaning investment-grade-rated debt is now trading in territory more associated with junk bonds.
Cracks spreading across the AI investment landscape
SpaceX's woes are part of a broader pattern. The so-called Magnificent Seven mega-tech stocks have dropped 6.5 per cent from their recent May highs, despite a partial rebound. The PHLX Semiconductor Sector Index — which had surged an extraordinary 105 per cent on the back of AI enthusiasm — has shed 16 per cent in just a fortnight.
Debt markets are flashing similar warning signs. A $US25 billion Amazon bond issue attracted roughly half the investor interest of a comparable offering in March, and its arrival pushed yields higher and prices lower across other AI-related debt — a sign that appetite for the sector's paper is becoming saturated.
The pattern suggests that after a four-year AI-driven bull run, market fatigue — and growing nervousness about bubble risk — is setting in. For AI-focused companies that depend on perpetually improving access to both equity and debt markets, that shift carries serious consequences.
Trillion-dollar float plans under pressure
When SpaceX made its spectacular debut, it turbocharged ambitions across the AI sector. OpenAI and Anthropic — both valued at under $US200 billion in fundraising rounds last year — had been openly discussing and filing draft prospectuses for potential trillion-dollar floats of their own.
That momentum has stalled. OpenAI is now said to be considering a float next year at the earliest, and Anthropic is widely expected to be reassessing the timing of any market debut given current conditions.
The structural challenge facing pure-play AI companies is stark. Businesses like OpenAI and Anthropic — and to a large extent SpaceX, whose valuation is dominated by AI-related potential — must continuously raise fresh capital to fund runaway investment in computing infrastructure. Critically, investment spending has been growing faster than revenues, meaning these companies are generating increasing losses even as their valuations soar.
To keep attracting that capital, valuations must keep climbing. If sentiment turns and valuations stall, companies risk losing access to the funding needed to stay competitive with larger, more diversified rivals. The knock-on effects of such a scenario, analysts warn, could ripple well beyond the tech sector into the broader US economy.
For investors who were prepared to pay extraordinary premiums for possibilities that exist only on paper, the market is now demanding a harder look at the numbers behind the narrative.
