By Andy Serwer
When looking at the stock market right now, the increasingly obvious question is to paraphrase that catchy 1940s tune: "Is you is, or is you ain't, in a bubble?"
Indisputably, there are signs -- some of which hark back to the dot-com era -- that it is. For instance, take a gander at this not-so-little equation: $1.75 trillion divided by $18.674 billion equals 93.71 times.
That's the expected midrange market capitalization of SpaceX's initial public offering ($1.75 trillion), divided by the company's 2025 revenue ($18.674 billion), with the quotient of 93.71 being SpaceX's price-to-sales ratio. Which is ridiculous. (The S&P 500 index's ratio is just 3.38 -- and that's with stocks at record highs.)
Perhaps, though, you think SpaceX is deserving of a stratospheric valuation. After all, this is a company that holds itself out as the North Star of our incipient "space-faring civilization," as Elon Musk puts it in SpaceX's prospectus.
In fact, the word "civilization" is mentioned 24 times in the S-1, along with 38 pages of risk factors, a 6 1/2 -page glossary of terms, and myriad beauty shots of rockets and space. Overall, the 389-page document is a monument to unbridled ambition -- a sorcerer's space dream of norm-stretching finance, massive capital spending on chips and data centers (more than on rocket launches), and billions of dollars of losses.
In 2002, Scott McNealy, former CEO of Sun Microsystems, a star of the dot-com age before it was swallowed by Oracle in 2010, was asked if he thought stock prices in 2000 were too good to be true. McNealy responded with a rant addressed to those who bought his stock when it sold for 10 times revenue:
"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I have zero cost of goods sold, which is very hard. That assumes zero expenses, which is really hard. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Do you realize how ridiculous those basic assumptions are? What were you thinking?"
Imagine McNealy's incredulity over buying SpaceX at 93 times.
And it isn't just SpaceX, but also Anthropic and OpenAI and the unceasing chatter and licking of chops over the mind-bending explosion of intergenerational wealth anticipated by their pending IPOs, that gives me pause. All of that, and the speculative melt-up of public equities, sure smacks of a bubble to me.
Let's start with some notes on those big three private companies looking to go public.
PitchBook figures that SpaceX's IPO "would generate more exit value than all VC-backed IPOs in the last decade, combined" (some 750 of them). There's the investment manager of the endowment at Washington University in St. Louis who plunked down $50 million into SpaceX nearly a decade ago, which is now worth in excess of $1 billion. Not to be outdone was the University of Michigan, which reportedly invested $20 million in OpenAI, now worth $2 billion. (Go Blue!)
Venture-capital firm Khosla Ventures also invested early in OpenAI and stands to make a windfall, but really you'd be hard-pressed to find any VC firm worth its salt that doesn't stand to make "FU" money in these deals. Perhaps the biggest winner will be Musk's old pal, Antonio Gracias, who runs Valor Equity Partners out of Chicago. Valor, deeply intertwined with SpaceX (it's cited 68 times in the S-1), is a party to a number of financing deals and leases with SpaceX and its subsidiaries, leaving its soon-to-be-shareholders on the hook to Valor for billions of dollars. Gracias is also listed as the beneficial owner of 503,414,530 shares of Class A stock, or 7.3% of SpaceX, worth some $100 billion. Some of that money belongs to Valor's limited partners, but Gracias gets a nice carry there, and certainly stands to make the kind of money that his great-grandchildren will enjoy.
To have a company that has lost more than $8.5 billion over the past three years potentially carry a valuation north of $1.5 trillion certainly defies typical valuation metrics. That might be less of an issue for early investors, though they may have other concerns.
"We were a co-investor in an SPV back when SpaceX's valuation was about $27 or $28 billion," says Adam Gibbons, chief investment officer of Latash, an Anchorage, Alaska-based family office with $1 billion in assets under management. "We're thrilled, as SpaceX has been an incredible investment for our clients, but today we've got more SpaceX exposure than we're necessarily comfortable with because of appreciation. It's a high-class problem, great for our clients, but we're also going to need to see liquidity.
"We don't yet know what the lockups are going to look like," he says. "We expect they're going to be long. But we're hopeful that these large companies leave some meat on the bone for public investors and that these IPOs go really well, because behind them we've got a lot of companies that want to go public. If SpaceX, Anthropic, and OpenAI suck out all the demand and then perform poorly, and then the IPO window slams shut again, that won't be good for anyone."
Beyond the Big Three, let's look at some flashing yellow lights in the public sphere. Chip stocks, which often play the role of traders' delight, and which were particularly hot tickets during the late 1990s, are now on fire. As of this past Tuesday, the 100th trading day in 2026, the PHLX Semiconductor Index, or SOX, was up 81% year to date, its best first 100 days of the year on record. The SOX has been greatly boosted by DRAM darling Micron Technology, which has gone parabolic, up 225% in 2026. Meanwhile, Advanced Micro Devices' market cap just surpassed JPMorgan Chase's, even though the former had $4.3 billion of net income last year and the latter had $56.8 billion. (For more on chip stocks, see this week's cover story.)
As for the overall market, the S&P 500 is now up 11-fold from the 2008-09 financial crisis, and has nearly doubled since 2023. The Wall Street Journal reports that hedge funds' short positions are at a 10-year high, which means the shorts are either spot on, or the market is set up for a serious short squeeze, which would send stocks even higher. The Journal also notes that the equity risk premium -- "the gap between the S&P 500's earnings yield -- the profit companies generate relative to stock valuations, expressed as a percentage -- and that of the 10-year Treasury note" -- is now nil. That's a low going back to just after the dot-com bubble burst.
Earlier this year, Jeremy Grantham, investment strategist and co-founder of investment firm GMO, and financial historian Edward Chancellor wrote a treatise, " Valuing AI: Extreme Bubble, New Golden Era, or Both," with a 10-point checklist of why we're in a bubble, starting with: "The emergence of a new technology about which extravagant claims can be made with apparent justification." Their conclusion: "We believe that we are in a U.S. stock market and AI bubble, and that at some stage in the future, most investors will be nursing very large losses." It should be noted, however, that Grantham and Chancellor recently published The Making of a Permabear: The Perils of Long-Term Investing in a Short-Term World, which makes me wonder how they ever made any money.
Astute market observer Mohamed El-Erian shared his take with me this week by email from Germany: "The stock market is betting heavily on rising corporate earnings and the promise of AI-driven productivity. Combined with technical influences, this optimism has decoupled some valuations from the reality of the underlying economy. As a result, a name-specific investing strategy is more appropriate right now than simply increasing broad market exposure."
El-Erian, if I may put a fine point on it, is saying the tech sector is in a bubble, so you need to own some nontech stocks. Easier said than done. Utilities are caught up in AI mania. Ford Motor has become an artificial-intelligence stock (and is up 28% this month). Between companies rationally expanding or glomming on (hello, Allbirds), being exposed to equities and avoiding the froth is almost impossible.
Since the beginning of the decade, the S&P 500 Information Technology Sector Index has commanded an ever-larger percentage of the overall index. As of May 13, if you adjust the index by adding in Alphabet, Amazon.com, Meta Platforms, and Tesla (which for some reason aren't included), the weighting was 52%. So, essentially more than half of the value of the S&P 500 is now tech, as opposed to, say, healthcare, which now only accounts for 8.3%, down from 14.2% in 2020. Imagine what happens when SpaceX, OpenAI, and Anthropic are added and the Mag 7 becomes the Mag 10.
After considering that last point, another paraphrase comes to mind, an adaptation of Pogo's famous line: "We have met the tech sector, and he is us."
On a whim, I decided to see what the best-performing stocks in the S&P 500 are year to date. When I saw the top five, I almost fell out of my chair: Sandisk, up 523%; Intel, 225%; Seagate Technology Holdings, 195%; Western Digital, 181%; and Micron, 163%.
Talk about ghosts of tech runs past. If you remember, all five rocked the 1990s tech boom hard -- and crashed just as hard the next decade. Now, a quarter of a century later, they're baaaaack.
Each has its own story, of course. Sandisk, a memory chip maker, got up to $81 in 2000, then plummeted to below $5 the next year. In 2016, it was bought by Western Digital, then spun out again just last year. It has been a home-run stock.
As for Micron, in 1995 I wrote an article about its soaring stock, "The Simplot Saga: How America's French Fry King Made Billions More in Semiconductors." It ended with billionaire patriarch J.R. Simplot, the then-86-year-old with a 21% stake in Micron, telling me, "Son, these computers are big, but they're going to get bigger. Bigger than the goddamned wheel!"
(MORE TO FOLLOW) Dow Jones Newswires
May 29, 2026 01:30 ET (05:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments