SpaceX threat to UK stocks: Risk-takers are seeking stakes in the next tech wave, says
The scale of Elon Musk’s Space X initial public offering is epic and the choice of retail access on both sides of the Atlantic is intriguing.
Musk’s $75billion cash raise and a potential valuation of $1.75trillion is hard to comprehend in London where we have no such behemoths.
It will usher in an era of artificial intelligence (AI) launches on listed markets with Anthropic and OpenAI, each valued close to $1trillion, coming down the pike.
The IPOs come in the week that $4.5trillion Google owner Alphabet is raising $85billion to put down more AI infrastructure such as data centres.
The Google funding is fascinating because until now Alphabet has managed to pay for most new investment from its cash flows.
But the sheer volume of new investment, with Wall Street projecting $250billion of new spending in 2027, no longer makes that possible.
Rocket man: Elon Musk is set to become the world’s first trillionaire following the SpaceX initial public offering
Alphabet investors may be reassured by the decision of Berkshire Hathaway to buy 10 per cent of the shares on offer. Warren Buffett’s successor Greg Abel is now making the influential calls.
Even if one accepts that AI, space and data centres will change the world for ever, there is bound to be queasiness about valuations based on turnover and potential rather than earnings.
Fears of a bubble which could burst any time are entrenched. My own record on tech is hopeless.
When Google floated in 2004, I was working in the US and convinced it would be destroyed by legal action because it thrived on purloining intellectual property and content from established media and research sources.
Similarly, there was much scepticism about Amazon and Jeff Bezos in its early days after it came to market in May 1997. It took the then online book seller 58 quarters, or 14 years, to turn its first profit.
The Space X, Anthropic and Open AI narratives are very exciting. The money scooped up from professional and retail investors is going to be an enormous drain on fund managers and market indexes as portfolios are reshaped.
Established equities, money market funds and cash Isas in Britain can be expected to suffer as risk-takers seek stakes in the next tech wave.
Strong-armed
Imagine the feel-good factor for the City and UK were the FTSE 100 to be the first European nation to host a $1trillion technology company.
Thanks to former prime minister Theresa May and her Chancellor Philip Hammond, it is not likely to happen any time soon.
It was on their watch that Cambridge born and bred Arm Holdings was sold off to Masayoshi Son’s SoftBank in 2016 for $32billion after a visit to Downing Street.
A decade later, the value of the British smart chip and AI developer has soared to $367billion on the Nasdaq in New York and, if listed in London, would be more highly valued than HSBC, at £242billion, and Shell, at £182billion.
It is possible to argue that without SoftBank’s tutelage, Arm may never have reached the current dizzying heights.
Potentially, it could have been worth even more, since chief executive Masayoshi Son speedily sold off its booming Chinese arm to a Beijing firm.
Arm chief executive Rene Haas has been tasked with turning the UK group into a trillion-dollar company by 2029, $1.5trillion by 2030 and $2trillion by March 2031.
If that is achieved, he is in for an enormous payday of $800million. As importantly, instead of Britain being a bit player in the AI boom it would have been at the core of a hi-tech ecosystem.
What a colossal error.
Partners’ grief
Indigestion in Europe’s private equity sector, which sits on billions of pounds of stale assets, is hitting home.
Swiss-based Partners Group is gating withdrawals from its £14beillion Global Value fund amid a rush of redemptions.
Partners is a big holder of UK property and an investor in North Star, a provider of offshore wind services.
Shares in the value fund plunged 17.7 per cent and stock in quoted private equity peers all dropped.
Time to reach for the tin hats.
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