What SpaceX's IPO Means for Tech Stocks, and Coping With Panic Attacks

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**Scott Galloway** (1:22)
Welcome to Office Hours with Prof G. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question for next time, you can send a voice recording to officehoursatprofgmedia.com. Again, that's officehoursatprofgmedia.com. Let's bust right into it. Our first question comes from a listener who emailed us. Hi Scott, the overall stock market has held steady, but tech stocks have taken a bit of a beating. Based on things you've said, I'm thinking that some folks have pulled money out of their tech stocks to invest in SpaceX. If this is the case, do you think the trend will continue with the anthropic and open AI IPOs? And if so, what do you think the overall effect will be on tech stocks for the rest of the year and maybe into next? Could this be a tipping point that finally causes many tech stocks to really fail? Okay, just some data on SpaceX. The IPO price $135 a share, open to $150. I think it peaked at about $210 or $230, reaching a $2.8 trillion market cap. That momentum did kind of come back. The stock has fallen every trading day since hitting its peak. In a single day, SpaceX shed $400 billion in market cap, making it the second largest one day wipeout in stock market history. But again, off an enormous base. By Friday, June 26, shares closed at $153, reducing the company's market cap to about $2 trillion. In less than two weeks, investors have watched nearly $750 billion disappear. Even after slight gains, the stock remains more than 30% below its high. The reality is it's still above its IPO, and it went way up and it's come down, but it's still an enormous success story. And the reason it's lost $600 billion is because it had a $2.5 trillion market cap to begin with.
So you'd think that it's weak after market performance could make boards and underwriters more cautious about timing. I don't know, is that true? They got a pop. They got a pop. They got, basically your IPO is a branding event, once in a lifetime branding event. All people care about was it was up. That gets enormous news. And essentially JP Morgan and Goldman Sachs are now really not bankers, they're engineers and that is they engineer scarcity and manufacture scarcity such that these things get 20 percent. I literally predicted it would get a first day pop of 20 percent. I think it was up 21 or 23 So some of the most recent valuations by companies that have confidentially filed for their IPO, OpenAI at 850 billion, Anthropic at 965, which is incredible that there's been such, I call it the flippening. SpaceX's week after market performance could make boards and underwriters more cautious about timing OpenAI and Anthropic's IPOs.
Is that true? I'm not sure. I think it probably encourages them. If SpaceX can go out at 110 times revenue, so you're going to love Anthropic at 40 On Thursday, June 25th, The New York Times reported that OpenAI may delay its IPO until 2027, citing market volatility and SpaceX's post IPO decline. I think that's a lie. I think that OpenAI is going to have to reflect or show numbers that they are losing momentum fast and that their decline in growth cannot justify the spending, the capex commitments they've made. You're going to see not only momentum shift to Anthropic, but you're going to see that OpenAI lacks, I wouldn't call it business discipline, but it's just a drunk spender. And their numbers will reflect that. And I think their CFO and the bankers came back and said, we need to get our house in order. What does that mean? I think OpenAI is going to go through a pretty serious cost reduction effort over the last six months in cleanup to then go public. The Wall Street Journal projects Anthropic could go public as early as this fall. How are these IPO's expected to impact the market? Before SpaceX went public, senior research analyst at PitchBook Harrison Rolfe predicted, pension funds, sovereign wealth funds, and large cap growth mandates will need to fund IPO allocations by selling NVIDIA, Microsoft, Google, and Metta, suggesting that participation in these large IPO's may come at the expense of existing big tech holdings. I think it's more likely that you can see pressure on Bitcoin because I think a lot of the people who want to be part of this generation of innovation, specifically Musk, are the same people who piled into crypto and they're going to pile out. Crypto, I think, is off 50% from its high. I think it's going to come under further stress the rest of the year. Research from investment advisory firm GMO found that every 1% increase in the market cap in a given month has historically been associated with a 7.5% decrease in stock market subsequent 12 month return. In some, we're in 99, we're firmly in 99 now and typically returns for the next several years aren't very good. The problem is, is sometimes, or oftentimes when guys like me say we're in 99, we're actually in 97 and the NASDAQ doubles from here. If you apply that historic relationship with the anticipated combined size of the SpaceX Open Ananthropic IPOs, which represent approximately 5% of publicly traded US equity once they're listed, we could see a 40% decline in the broader stock market over the next year, one, three or five years. The problem is timing and that leads me to what do you do? The reality is, I think it is very hard to time the markets, and if you try and sell and get back in, that's hard because when you sell, if you're fortunate to have experienced gains, you're going to pay taxes and then you effectively have to tie back in at 23% less just to break even because you're taking a tax it, you're triggering a tax event. It's also very hard to time the markets. So what do you do? If you think that the US market and the NASDAQ and AI stocks are overvalued, just make sure you're really well diversified and diversification is taking on a new meaning because you're no longer diversified when you're just in the S&P because 40% of the S&P is just 10 companies. So what I tell people to do is not to try and time the markets, but to make sure they're diversified across asset classes, you can start looking at fixed income again, which is actually paying you for some risk and more importantly, across geographies.