What if the Artificial Intelligence bubble had SpaceX’s face?

For more than two years, debate in financial markets has revolved around one question: are we facing a new technology bubble fueled by artificial intelligence?

by Vincenzo Lana

Valuations of the sector’s leading companies have reached levels that, for some, recall the dot-com frenzy of the late 1990s. Investor enthusiasm seems inexhaustible. Each quarter brings announcements of new billion-dollar investments, new artificial intelligence models and fresh promises of economic transformation. And yet, as often happens in markets, the risk may not lie where everyone is looking for it.

While investors are focused on Nvidia, Microsoft, Alphabet and the other major AI players, one company is rapidly taking on an increasingly central role in the global financial imagination: SpaceX. At first glance, that may sound like an odd statement. After all, SpaceX is an aerospace company: it builds rockets, operates satellites and develops technologies for space exploration. Yet in recent years, the company founded by Elon Musk has become something much broader. Through Starlink, the global satellite infrastructure, its growing ties to the artificial intelligence ecosystem and the operations involving AI, SpaceX is now seen by investors as a bet on the technological future as a whole.

And it is precisely this transformation that deserves attention, because the great speculative bubbles in history have always had a symbol: in the 1920s it was the great American industries; in 2000 it was the internet companies; and in the last decade it was Tesla. In every case, the mechanism has always been the same: a single company or a small group of companies ceases to represent just a business and becomes the embodiment of an entire vision of the future; and today SpaceX seems to be moving rapidly along that same path.

The numbers help explain the scale of the phenomenon. According to the latest valuations, SpaceX is worth more than $2.5 trillion, a figure that places it among the largest companies ever to exist. To understand what that number really means, it is useful to make a comparison. Walmart, the world’s largest retailer, generates more than $680 billion in annual revenue, employs more than two million people, operates in dozens of countries and serves hundreds of millions of customers every week. Even so, its market capitalization is far lower than that currently assigned to SpaceX, which records revenues in the tens of billions of dollars — far below Walmart’s — yet is valued by the market at more than twice Walmart’s level. Naturally, this does not mean that SpaceX is overvalued. However, a huge part of its value depends on future expectations that have yet to be realized, and so investors are not buying what the company produces today, but what they believe it may become tomorrow. And that is exactly the ground on which speculative bubbles are born.

Perhaps the most interesting aspect is that the process of integrating SpaceX into traditional financial markets has only just begun. In recent days, the first ETFs dedicated exclusively to the stock have been launched, including leveraged products and instruments designed to amplify the share’s daily moves. At the same time, numerous thematic ETFs and managers are considering or beginning to include the stock in their portfolios. We are therefore not dealing with a phenomenon that is already mature; we may only be at the beginning. This detail matters, because financial history teaches that systemic risks tend to grow when capital progressively concentrates around a few dominant symbols.

Mathematician and researcher Didier Sornette (pictured), who has devoted much of his scientific work to studying the mechanisms that lead to the formation and bursting of financial bubbles, describes in his work how markets can enter a phase of positive feedback in which rising prices attract new investors, who in turn push prices even higher, fueling a self-reinforcing cycle that progressively detaches from economic fundamentals. According to Sornette, the accelerated growth in valuations and the concentration of capital often represent characteristic signs of the final stages of a bubble. His research shows how the most central nodes of the financial system can become privileged channels of risk propagation when investor sentiment suddenly changes.

This is where the most interesting hypothesis comes into play: what would happen if SpaceX, after becoming one of the symbols of the new technological economy, were to suffer a sharp correction? Let us imagine a purely theoretical scenario in which the stock loses 50% of its value. It would not be an unprecedented event. Amazon lost more than 90% during the bursting of the Internet bubble. Meta recorded a drawdown of more than 70% between 2021 and 2022. Tesla has undergone corrections of more than 50% several times. In such a scenario, the direct effects would first affect the investors exposed to the stock. But the problem might not stop there. ETFs would need to rebalance their positions, and leveraged instruments would amplify the moves. Investor redemptions could trigger further selling, and sentiment toward growth stocks could deteriorate rapidly.

At that point the market would begin to ask itself a very simple question: if one of the companies seen as a symbol of the future can lose half of its value, how solid are valuations across the entire technology sector? The main risk would therefore not be the economic damage caused by a collapse in SpaceX itself. The risk would be the narrative shift; and that is because financial markets do not move on balance sheets alone, they move on expectations, and when a dominant narrative breaks, psychological contagion can spread much faster than economic data. In this context, some theoretical models of financial contagion suggest that an event of this kind could generate drawdowns far larger than the initial loss in the single stock. In extreme simulations based on ETF concentration, high correlations among growth stocks and a simultaneous deterioration in sentiment, the overall decline in global markets could reach levels between 20% and 35%.

This is not a forecast. No financial institution has published an official estimate of this kind. It is solely a theoretical scenario built by applying concepts drawn from studies on financial contagion and the spread of speculative bubbles. The final question, therefore, is not whether SpaceX is worth $2.5 trillion today; the question is how much of that value represents concretely realizable future revenues and how much instead reflects expectations, enthusiasm and trust. Because all the great bubbles in history have shared one common trait: they were born when investors began to believe that the future had already arrived. And if one day that confidence were to falter, SpaceX might not be the cause of the next correction in artificial intelligence, but it could become the main vehicle through which risk spreads to the rest of the market.

Disclaimer.
This article presents analysis and hypothetical scenarios only. The drawdown simulations ranging between 20% and 35% do not constitute market forecasts or official estimates. References to financial contagion mechanisms are inspired by the academic literature on speculative bubbles, particularly the work of Didier Sornette and collaborators. They do not represent a forecast of the future performance of SpaceX or financial markets.