Tech shares zigzag

Katie Martin (0:06)

Pushkin.

Big tech has been having a bit of a wobble. On one day this week, Korea's tech-heavy stock market dropped 10%.

In the US, it was a similar, if less dramatic story with the super techie NASDAQ down 2% or so, and SpaceX, the newly listed thing from Elon Musk, struggling to cling on to its early gains. Some spectacular results from Micron, another AI biggie, seems to have got the good vibes going again, but it's been a very up and down kind of week. Today on the show, is this a random wobble or a sign that the AI trade has got a little over caffeinated? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, where the current temperature is 1000 degrees Celsius. Skeletons are dotted around the streets, the city is deserted, and everyone is grumpy because it's just too hot. Joining me down the line from his bunker in New York City is that guy, Rob Armstrong. Rob, I gather, it's cooler there.

Rob Armstrong (1:17)

It's very nice. And I just want to note for the record that our editor, Bryant, begged you on his knees not to talk about the weather in today's show, and you would not be stopped.

Katie Martin (1:30)

Bryant does not understand how hot it is though, man. Like everything is bad and wrong.

Rob Armstrong (1:36)

The English do not manage the heat well.

Katie Martin (1:39)

It hits different over here, it hits different. It was nice to see you the other day. Yeah, it was good.

Rob Armstrong (1:45)

The weekend festival. Yeah, it was a great event.

Katie Martin (1:48)

And there was some Unhedged podcast superfans there. So hello to all of you.

Rob Armstrong (1:52)

It's always nice to see people in real life.

Katie Martin (1:55)

I know. We have to remember that our listeners are real humans in real life.

So it has been a weird week on the tech stocks front. Where should we start? I think we should start with SpaceX.

Rob Armstrong (2:09)

Yes.

Katie Martin (2:09)

So it was born onto public markets just a few days ago with like a valuation of ridiculous money, $1.75 trillion. And then immediately the share price sprang higher, didn't it?

Rob Armstrong (2:23)

Yeah. And this is something that IPOs, Initial Public Offerings, are supposed to do.

Indeed, the people who design them build this in as a feature. So what is an IPO? A company has a bunch of shares to sell for the first time. It's basically offering ownership in its enterprise to the public. And it goes to a bunch of bankers. And they say to the bankers, please get as much money for each share of my company as possible. But I need certainty. In other words, I can't have my IPO fail. Right?

And so they say, you know, the market will probably tolerate a hundred dollar stock price at the outside. We've got some demand lined up for you. But let's offer it at 90 or 85, just so everybody has a nice warm feeling. Everybody who we've sold this stock to, as the initial buyers, has the nice warm feeling of initial pop. And there is a general aura of money making goodness around our equities.

Katie Martin (3:34)

But the pop generally eats itself, doesn't it? Like it doesn't generally stick around. So this stock listed at, I think it was $135.

And then it opened at $150. And then it sprang up to 220 something. And now it's basically come back down to $150 again. Charts on the radio.

Rob Armstrong (3:56)

And that's pretty, that's not unusual, right? We don't have good price discovery about a brand new stock, right? The stock market is a big, very diverse group of people trying to figure out collectively what something is worth.

And everybody is kind of feeling everybody out, everybody else out when a stock is new. So it's normal that a new stock should be volatile. This stock came to life at a moment of such incredible hype that it makes sense that the figuring out what the thing is really worth process should be even harder and more complicated.

Katie Martin (4:36)

Yeah, like the academic work on IPOs, on those moments when companies list for the first time, is that POPs are pretty normal and they can often be in the range of about 18 percent, which is what we saw in the case of SpaceX. And they don't normally, they don't always last.

The other conclusion from all the kind of data, if you go back decades and decades, is that IPOs kind of suck as investments in the first few years. Like there's a lot of dispersion here, so it's a bit difficult to draw sort of general conclusions. But newly listed companies just don't always do that well in their first one, two, three years even. They can trail behind the rest of the market. So it's easy to sort of point fingers and say, you know, lol, isn't it funny that Elon Musk isn't a trillionaire anymore? And don't get me wrong, I'm very happy to do that. But I don't think we can read that much into the fact that the share price has come down after the pop.