Ed, the analyst conflict is the second act. The first act played out before the roadshow even began. In the weeks before the IPO, Anthropic signed on at $1.25 billion a month to rent SpaceX's idle Memphis data center (xAI having been conveniently folded in that February), and Google followed at $920 million a month just seven days before listing day. That's how you dress a company losing over $4 billion a quarter for its public debut: manufacture the revenue story first, then hand it to the underwriters to ratify with price targets. And here's the detail the price targets don't dwell on—both contracts carry 90-day termination clauses. The $26 billion of annualized "revenue" propping up those trillion-dollar models is cancellable paper. Note, too, that the S&P 500 still won't admit SpaceX, because its GAAP profitability rules can't be flattered.
So the circle is now complete. Engineered revenue in, engineered research out, and the referee walked off the field in December.
I wrote about the manufactured-demand half of this when the IPO landed. But your piece crystallizes something I recognize from further back. I grew up in South Africa—Musk and I share that origin—and I watched a state perfect the art of making corruption look like procedure. The tell was never the crime; it was how routine the paperwork looked. A $10.4 trillion price target from your own underwriter is exactly that kind of paperwork. When enough respectable institutions sign off on an absurdity, the absurdity stops looking absurd. That's the mechanism, whether the product is a stock or a state.
I would really love to subscribe to Prof G Media but $20 a month is ridiculous. What is the demographic they are trying to reach? $5 month. Sure. $20? That’s inaccessible to normal people.
Instead of trying to make all these laws to cure human failings, the incentives are clearly aligned for the analysts: to shill their bag. Always has been. If an investor hasn't figured that out yet, their agents will in time. Regulations should be focused on the ability to receive market data as quickly as anyone else (level playing field).
Nonsense to think that a year ago analysts weren't shilling their bag, as they were 5 years ago and so on, one must not assume an analyst's bag is only their portfolio though.
We like to believe that markets optimize and find the right price, but they are run by humans who have these tendencies like flattery as you mention which makes it hard for them to call out a bad company when they’d rather make friends
With the advances in technology and information, every analyst, same as every company, politician and KOL (influencers) should release their investments and holdings, in a public way.
A mere “full disclosure I invest in X” sometimes isn’t enough.
A standard way to share your portfolio holdings (doesn’t require all the details) most be enforced by consumers. We should get to a point where not doing so should be frowned upon.
Great read, Ed. History 'rhymes' again. Reminds me of getting pummelled by telco analyst Jack Grubman of Salomon Smith Barney back in the day. Lesson learned.
I read a Harvard MBA research paper in the early 2000s that reviewed 1000 business plans. In more than 95% of cases, the pessimistic outlook was the eventual outcome. Since then, this has been my rule of thumb: there is a 95% probability that the pessimistic view will be realised and only 5% that the optimistic outlook. SpaceX is just a business generating more (space) junk.
$10.4 trillion is not a valuation. It's a fee structure wearing a price target. The bank that publishes it gets to underwrite the next offering, advise on the next acquisition, and arrange the next secondary sale, all at a percentage of a number it just invented. The analyst note is the product. The target price is the marketing.
We wrote about this when SpaceX listed. The most bullish and most bearish analysts disagreed by a factor of 3.5 to one on a $2 trillion company. When the spread between the highest and lowest price target is wider than the stock's entire trading range, the market hasn't finished pricing it. The analysts have just finished positioning for fees.
What is also a huge incentive is getting named as the employees stock option broker. The firm will do a cashless exercise keeping the spread, then put on a full court press to get the employee into the firm's wealth mgmt arm with the resulting fees. You sure aren't going to sign up an employee with anegative outlook on his holding. If the Dem's ever take the presidency, look out.
This piece, and the other content that Ed has produced regarding SpaceX, is excellent. One more reason for most retail investors (me included) to stick with index funds and sensible asset allocation strategies.
Ah yes, index funds are confounding the market as well. Also you may need to doublecheck because there just might be some spcx in your index now too ✌️
Ed, the analyst conflict is the second act. The first act played out before the roadshow even began. In the weeks before the IPO, Anthropic signed on at $1.25 billion a month to rent SpaceX's idle Memphis data center (xAI having been conveniently folded in that February), and Google followed at $920 million a month just seven days before listing day. That's how you dress a company losing over $4 billion a quarter for its public debut: manufacture the revenue story first, then hand it to the underwriters to ratify with price targets. And here's the detail the price targets don't dwell on—both contracts carry 90-day termination clauses. The $26 billion of annualized "revenue" propping up those trillion-dollar models is cancellable paper. Note, too, that the S&P 500 still won't admit SpaceX, because its GAAP profitability rules can't be flattered.
So the circle is now complete. Engineered revenue in, engineered research out, and the referee walked off the field in December.
I wrote about the manufactured-demand half of this when the IPO landed. But your piece crystallizes something I recognize from further back. I grew up in South Africa—Musk and I share that origin—and I watched a state perfect the art of making corruption look like procedure. The tell was never the crime; it was how routine the paperwork looked. A $10.4 trillion price target from your own underwriter is exactly that kind of paperwork. When enough respectable institutions sign off on an absurdity, the absurdity stops looking absurd. That's the mechanism, whether the product is a stock or a state.
I would really love to subscribe to Prof G Media but $20 a month is ridiculous. What is the demographic they are trying to reach? $5 month. Sure. $20? That’s inaccessible to normal people.
To borrow from Mayor Quimby’s office: Corruptus in extremis.
Instead of trying to make all these laws to cure human failings, the incentives are clearly aligned for the analysts: to shill their bag. Always has been. If an investor hasn't figured that out yet, their agents will in time. Regulations should be focused on the ability to receive market data as quickly as anyone else (level playing field).
Nonsense to think that a year ago analysts weren't shilling their bag, as they were 5 years ago and so on, one must not assume an analyst's bag is only their portfolio though.
We like to believe that markets optimize and find the right price, but they are run by humans who have these tendencies like flattery as you mention which makes it hard for them to call out a bad company when they’d rather make friends
With the advances in technology and information, every analyst, same as every company, politician and KOL (influencers) should release their investments and holdings, in a public way.
A mere “full disclosure I invest in X” sometimes isn’t enough.
A standard way to share your portfolio holdings (doesn’t require all the details) most be enforced by consumers. We should get to a point where not doing so should be frowned upon.
This issue is fixed bottom up, not top down
Great read, Ed. History 'rhymes' again. Reminds me of getting pummelled by telco analyst Jack Grubman of Salomon Smith Barney back in the day. Lesson learned.
I read a Harvard MBA research paper in the early 2000s that reviewed 1000 business plans. In more than 95% of cases, the pessimistic outlook was the eventual outcome. Since then, this has been my rule of thumb: there is a 95% probability that the pessimistic view will be realised and only 5% that the optimistic outlook. SpaceX is just a business generating more (space) junk.
My new mantra, Trust No One.
Sad…
$10.4 trillion is not a valuation. It's a fee structure wearing a price target. The bank that publishes it gets to underwrite the next offering, advise on the next acquisition, and arrange the next secondary sale, all at a percentage of a number it just invented. The analyst note is the product. The target price is the marketing.
We wrote about this when SpaceX listed. The most bullish and most bearish analysts disagreed by a factor of 3.5 to one on a $2 trillion company. When the spread between the highest and lowest price target is wider than the stock's entire trading range, the market hasn't finished pricing it. The analysts have just finished positioning for fees.
https://scenarica.substack.com/p/the-2-trillion-launchpad
What is also a huge incentive is getting named as the employees stock option broker. The firm will do a cashless exercise keeping the spread, then put on a full court press to get the employee into the firm's wealth mgmt arm with the resulting fees. You sure aren't going to sign up an employee with anegative outlook on his holding. If the Dem's ever take the presidency, look out.
This piece, and the other content that Ed has produced regarding SpaceX, is excellent. One more reason for most retail investors (me included) to stick with index funds and sensible asset allocation strategies.
Ah yes, index funds are confounding the market as well. Also you may need to doublecheck because there just might be some spcx in your index now too ✌️