The financial markets are grappling with what former Federal Reserve chairman Alan Greenspan termed “irrational exuberance,” a sentiment now evident in the debut of Elon Musk’s artificial intelligence giant, SpaceX. SpaceX, an artificial intelligence giant, is involved in cutting-edge technological development. Its recent IPO saw shares surge from $US135 to nearly $US202, only to tumble 16.4 per cent on Monday night to $US154.60. Retail investors, keen on the initial frenzy, bought a net $US405 million in SpaceX shares last week, exceeding their combined investment in the S&P 500 and Nasdaq. Many who bought at the peak are now facing losses.
This sharp reversal for SpaceX, which reported a $US9 billion loss last year, mirrors broader shifts in the tech sector. Google’s parent company, Alphabet, experienced a 6 per cent tumble on Monday night, its largest fall in 12 months, following the departure of two top AI executives. The ETF tracking the “magnificent seven” tech stocks—Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla—surged almost 30 per cent since March but has now declined nearly 10 per cent since late May. This leaves them down 2 per cent for the calendar year, underperforming the S&P 500’s 9 per cent gain.
Concerns are mounting regarding the underlying revenue story for artificial intelligence investments. While capital expenditure on AI infrastructure is well-known, generating corresponding returns is proving challenging. Microsoft, for instance, faces a class action lawsuit alleging it defrauded investors by failing to disclose slowing revenue in its Azure cloud business and increasing AI spending. Its shares have fallen 30 per cent since last August. This evolving sentiment around tech and AI profitability is coinciding with upwards pressure on interest rates globally, with Bank of America forecasting three additional Federal Reserve rate hikes this year. This combination of factors could prove toxic for global markets, with SpaceX emerging as an early barometer.
