The City is watching Elon Musk’s latest circus act with alarm. SpaceX, his private rocket venture, has seen its valuation balloon to over £200bn in secondary markets, up more than 60% in six months. For those who remember the dot-com blow-off or the Woodford implosion, this has all the hallmarks of a bubble forged in the furnace of central bank liquidity and venture capital herd mentality.
Let me be clear: I am not a Luddite. Rocket reusability is a genuine breakthrough. But a £200bn price tag for a company whose revenue is a rounding error next to its valuation? That is not innovation. That is financial engineering dressed in a spacesuit.
The mechanics are textbook. SoftBank, Fidelity, and a gaggle of sovereign wealth funds are piling into the private secondary market. They are not buying because of discounted cash flows. They are buying because they fear missing out. Because the Fed’s cheap money has to go somewhere. And because Musk, love him or loathe him, is the ultimate market hypnotist.
London investors are particularly nervous. The London Stock Exchange has already seen a decade of tech listing drought. We lost Arm to New York. We lost Darktrace to a takeover. Now the spectre of a SpaceX initial public offering on Nasdaq threatens to drain yet more capital from UK pensions and funds. The pound is already under pressure; a further outflow into frothy American tech would be a gilt-edged disaster.
Look at the comparables. Tesla trades at 80 times earnings. SpaceX has no earnings to speak of. Its Starship programme is years from profitability. Its Starlink unit, while promising, faces spectrum wars and terrestrial competition. The bull case rests entirely on monopoly on launch services and a future Mars colony that is, frankly, a billionaire’s fantasy.
Meanwhile, the macroeconomic backdrop is turning hostile. Inflation remains sticky in the UK and US. The Bank of England is behind the curve on rate cuts. Gilt yields are rising as fiscal discipline evaporates. In such an environment, speculative tech valuations should deflate, not expand. Unless of course, the bubble is being actively inflated by those who profit from it.
What happens when the music stops? If the Fed is forced to tighten, or if Musk’s attention is diverted by his latest Twitter antics, the liquidity tap could turn off overnight. Secondary market valuations are notoriously fragile. When sellers outnumber buyers, the drop can be 40% in a week. Ask the bagholders of WeWork or Nikola.
My advice to the Chancellor and the FCA? Do not let British capital be the exit liquidity for this gamble. Encourage UK pension funds to rebalance towards value and infrastructure. And for goodness’ sake, create a listing regime that actually attracts real tech companies, not just mining and banking dinosaurs.
Musk is a genius. But genius is no defence against gravity. And gravity always wins.
