Since the S-1 filing, xAI has taken over and is likely the largest share of revenue. I would estimate that ~95%+ of xAI revenue, and 100% of its profit, is from renting their datacenters.
This is a datacenter REIT bolted onto a social media company bolted onto launch business bolted onto a niche ISP. The expected price to sales is ~100x. The best datacenter REITs trade at ~10x and pay a dividend, which SpaceX does not. Meta trades at ~7x sales. Comcast is one of the best-run ISPs, and it pays a 5.5% dividend on a stock trading at < 1x sales.
To say SpaceX is overvalued is to even beginning to convey the magnitude of the situation. It's going to be very painful when the valuation normalizes.
TSLA has a forward PE of ~200x. That is probably the most logical comparison with SpaceX. Proof that the market can stay irrational for quite a long time.
It fills me with a bit of dread about the future of the market. I am 10 years out from retirement, have a bit over 1M sitting in that market, and I wonder if it will implode in the meantime. I am fairly committed to the "invest like a dead man" (i.e. index funds, no touch), but the world we live in today makes me have real doubts that the next few decades will look anything like the last few.
Start gradually converting your equity to bonds is the standard advice on that timeframe. If you're dreading equity drawdowns, that's what fixed income is for.
Bonds are no longer recommended. Current research indicates 100% equities to be the best composition leading up to, and past, retirement.
To point, the economic uncertainties around geopolitics, AI, and war, plus irresponsible debt spending by governments and the prospect of QE (and higher inflation), is pushing long term rates steadily higher. There’s a reasonable chance that 30y treasuries are nearing 6% by the end of next year. Remember that rates and bond prices are inversely related. Anyone who holds bonds in this market will likely lose money. Holding to maturity won’t help much either because if inflation continues to rise, as is a major concern, most or all of that 5% yield gets eaten.
> Bonds are no longer recommended. Current research indicates 100% equities to be the best composition leading up to, and past, retirement.
Are you referring to Anarkulova et al? Might be worth mentioning that the fixed income part is replaced with international equity, not more domestic equity.
That’s been something I’ve started doing. The nice part of the bond chunk of my investment portfolio is the current income aspect of it, with monthly dividends that give an annualized return of a touch under 4% on top of the capital growth.
So there’s two ways you make money from any mutual fund: the first is that the value of the shares can go up (that’s called capital growth). The second is through dividends and distributions. Dividends will be higher with a bond fund than stocks just because the trend for the last few decades has been for corporations to focus on growing share price rather than paying out dividends to shareholders. Distributions are realized capital gains in the fund that are paid out to shareholders, typically annually or semiannually.¹ Stock funds usually pay dividends on a quarterly basis, while bond funds may pay monthly. In my case, I’m getting a monthly dividend of about ⅓% from my bond fond (Fidelity bond index fund), although checking my records, the share price has been relatively steady over the last few years so my IRR is not that much above the dividend rate.
Another good option for something that can give good current income is REIT stocks. The management fees on the funds that specialize in these tend to be high for my tastes (I like passively managed funds with management fees that could be rounding errors) so when I’ve had money in REITs, I’ve typically looked at the top stocks in the REIT funds and just bought those directly with dividend reinvestment. Note that because of the nature of REIT dividends and taxes, it’s better to use tax-advantaged accounts to buy these than to put money in a regular retail account towards them.²
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1. Back during the first dotcom goldrush when tech stocks were especially volatile (1999–2001 in particular), people who bought dotcom mutual funds in taxable accounts often ended up with a big distribution from the fund and a drop in share price greater than that distribution so that they would end up not only losing money on their investment but they also had a tax bill for their troubles since distributions will count as realized capital gains.
2. Important to note that I’m not a financial advisor and my advice is probably garbage.
Their definition of long run and your definition of long run are probably different.
Also, it should be noted, just because it's the optimal to have the most $'s that shouldn't be the goal. The goal should be to survive your retirement with "enough".
And it should also be mentioned, most people can't stomach holding 100% equities, for a very good reason. When the 40-60% market crash happens, people get emotional and make emotional decisions. Sure there are the lucky few that can hold out, but most can't. Are you going to be one of the few lucky ones? If you haven't yet been through it once(last one in the USA was 2008/9), how do you know for sure?
For most people, $VT (or VWRA) is optimal. You should have a U.S. tilt because most growth is coming out of the U.S. $VT will naturally rebalance into international equities on that growth. If you already have a U.S. heavy portfolio and want more international exposure, $VXUS.
Bonds only give you certainty to the extent that inflation remains certain.
Stocks generally rise with inflation, whereas bonds continue paying out the same nominal amount, which buys you less over time.
As a retiree I'm 50/45/5 in stocks/bonds/cash, having opted for a conservative portfolio. The stocks are the only reason I haven't lost buying power. But the bonds have performed so poorly that I've barely kept up with inflation despite the amazing bull run in stocks.
Are we talking about bonds or government bonds here? The former will beat inflations assuming you don't just buy AAA rated ones. Investment grade perpetual bonds in US dollars yield over 6.5% on a Yield-to-call basis.
It depends on the goal / priority. In most financial / retirement advice they are focused on average middle class Americans. They tend to have too little savings, and not a lot of options.
If you have more than enough saved to meet your basic needs, it does (IMO) make sense to give up some total income for lower variance.
I sleep on certainty. I feel bad for the people based their futures entirely on a trajectory from a time we'll look back on as "utterly unsustainable".
Bonds will give you poor (probably negative) real returns, but if you're 10-20 years away from dying you're more concerned with wealth preservation than growing your wealth.
People have forgotten this but equities are an infinite duration asset that are prone to periodic, significant, often violent crashes.
(Edit: often at a time when everyone is absolutely convinced they're the best asset class...)
You can keep some equity exposure but you don't want 1929 or 2008 to happen the day after you retire when you might live for another 30 years
The theory I have seen when they say we should convert into bounds near retirement is that you don't really get to decide when to sell, that's money you need to live. And if you are unlucky enough to need money when there is a market crash, you are screwed.
Bounds are not as volatile, so even if you lose some money from inflation, you are less likely to lose a lot of money, money you need to live, from the whims of the market. You want to protect your capital, yields don't matter as much if you near the end of your life.
If you are younger, and you make reasonable investments and not gambles, you can expect that your value will go up (more so than with bounds) within a decade or two, and because you have income, you don't need that money and you can wait for the market to recover before selling.
You absolutely need to get inflation adjusted bonds. Otherwise you’ll get wiped out. I am in the krugman, stiglitz monetary camp; so not prone to constant fear of hyperinflation but what the government is doing makes inflation certain and the only way out a fairly painful recession either of will be hard on equity and bonds.
The market of a good leader is a lack of chaos. We are seeing the effects of a chaotic mind untethered from an accurate view of reality. Buckle up
I'm technically not really in pure index funds, I just wanted to avoid trying to complicate my thoughts. Nearly all of my investments are in VFORX or Schwab's equivalent, and have been for a long time. So they are really composed of total market funds, bonds, etc, and Vanguard changes the ratio a bit as 2036 approaches. So while not really an index fund, from my perspective as a lay investor I treat it like that and consider myself an honorary Boglehead. I just put money in and forget about it.
It looks excellent for your needs, and have an incredibly low expensive ratio of 8bps(!). Currently, it is 75% stocks, and 25% bonds. Don't worry about a bubble in the stock market.
EDIT (after reading many, many more negative comments below):
The problem with discussing your investments online, there are a million negative replies. No one ever says: "Yeah, looks pretty good. Leave it alone." I'm here to be that guy.
As others have pointed out, bonds are barely (or not) keeping up with inflation. I would like to suggest a third alternative to stock index and bonds: stable dividend stocks. They should increase in value along with inflation but still pay out a steady dividend as long as the company is strong.
This is absolutely terrible advice and is out of touch with modern financial understanding. Bonds feel psychologically safer, but lead to failure more often than total market equity portfolios, even when you account for market crashes.
I feel like I should go learn some more. I'm not in a pure index fund, I'm really in VFORX (almost completely, I'm not too original nor sophisticated financially and don't try to pick my own stock picks these days except with my "lunch money" just for fun). Do you think something like VFORX is a bad option? It's actively managed, so the fees will be a little higher than a pure index fund, but it's Vanguard and the fees are still really low. And it has total market components in addition to bonds.
Active management in general is a poor idea. You'll get better risk adjusted returns by investing in total world equities (like VT). Check out Bogleheads to learn the basics. If you want to get more advanced, you can learn about factor investing as well, but VT is enough for the vast majority.
If you want to get intuition for why this works, this is a really fun and interesting video: https://youtu.be/TQuxVz52w2w
I agree with everything in the video you linked (which is not surprising, given it's Ben Felix). That includes the parts about equities being less risky than bonds in very important ways, but also the parts about behavioral loss tolerance and risk capacity, and how they can indicate higher bond allocation.
So I disagree that "If you're dreading equity drawdowns, that's what fixed income is for" is absolutely terrible advice.
It is precisely what the video says. Ben has discussed this multiple times as well, not just in this video. If you have better behavioral tolerance for volatility (as in you're not the type to panic sell), total market equities will outperform and lead to less failure in retirement.
While partially true, that "If you have better behavioral tolerance for volatility" is HUGE. Most people can not do this. Once they see their net worth go from $x to $x/2 or worse, they panic sell. People are emotional beings and it's very very hard to not let your emotions dictate what's going on.
If you haven't lived through a market panic and crash(last one in the US was 2008/2009), then chances are you shouldn't count yourself as being able to do it.
Also, their 100% equity time frames are measured in many lifetimes, not in a single lifetime.
If the goal is to have the biggest $ balance, then sure 100% equities for the win, but if the goal is to survive your retirement with little worry, 100% equities is a terrible idea.
Bonds provide stable cash flow. Equities provide growth/return. Use both in the appropriate amounts for your situation.
I always thought the psychological safety was exactly part of the point, since 100% equity portfolios do better in theory than practice, because people are more likely to panic sell.
One of the lessons from 2008 is that even the contrary position gets obliterated when the whole damn system implodes.
So, the optimists all swim in the cash while your contrary position fails to keep pace with the bull market; and then the bear market hits and you all get obliterated equally.
8% decline YOY, Tesla shut down production of Model S & X. Eventually, they will become a pure speculation as a service stock, with zero production. But its cheaper to produce than bitcoin, no energy needs to be expended, runs on pure Musk energy!
They shut down production of S & X to make more capability for cars that they want to focus on and which sell way more, AND Cybercab.
Tesla grows in large steps. Next big step is Robotaxis, which is well on its way. After that, robots, for which they have the best real-world AI platform for.
You could say Tesla is a speculation stock as well when they had released the Roadster. Tesla shorters always lose.
It might be. It might not be. That's where the money is or isn't.
I think the mature part of their business is 3/Y, energy storage, and maybe cybertruck, although I also think it's too early to call it because it depends on lower cost cell in house cell production and they only started that recently.
In the near term, the growth part is Semi, cybercab, FSD, lithium cell production, and maybe cybertruck.
In the long term, it's potentially Optimus, more general autonomy, and gigafactories.
That doesn't mean they can't make a mess of things all by themselves. But comparing their infra investments/growth strategy to snake oil when they've gone from nothing to $100 billion/year in 15+ years might be short sighted.
Semi is DoA, FSD has been 1 year away for 10 years now give or take, cybercab is flailing, cybertruck same, and China is eating everyone's lunch on lithium cells.
They might might fail, but I wouldn't bet on it. Also cybercab isn't out yet, so any discussion is premature at best.
Cybertruck has been disappointing, but I think a big part of that is cost. They started in house dry 4680 cell/pack production a couple months ago, so we'll see how that goes over the next few years.
Even with China subsidizing cell production and being dominant in the world market, Tesla is still at 150gwh/year compared to 200gwh/year from BYD.
The big question is how the dry cell 4680 packs will perform and how well they can scale production if performance is adequate.
FSD is always a year away, but that's generally OK as long as it keeps improving and there isn't a comparable product in their cost bracket. If someone leapfrogs them, they're done. If not, they might be able to roll everything up all the way through Optimus.
About 10 years out as well. I’ve concluded I just invest a very balanced set of index funds and bonds and GICs across a handful of institutions, and then invest in my home because even if the housing market collapses I get to enjoy my nice home.
Other than that I’m just not over investing for retirement and instead making sure the money is spent today on family growth and experience.
I eventually just got tired of everyone with an opinion on what doing it right looks like or how to predict the market.
there's no such thing. He's talking about L/S funds. The market neutral funds survive by capitalizing edge cases but during real market turmoil the whole thing blows up.
Eh, Tesla had a relatively normal growth company valuation for a while when they were growing strongly. The problem is the stock still hasn't compressed the multiple back down as growth stagnated... because the market swapped out "valuation based growth" for "call option on robotaxi success" at the blink of an eye.
The truly terrifying thing is that someone could short the Musk companies, and with one bullet can cause them to drop 50-90% right away (thanks to meme-ness). And they are valued so high that such a person could make billions overnight, maybe 10s of billions. Terrifying to be Must or anyone that shares a car or plane with him.
In a similar situation: I basically have just 2 funds in my retirement portfolio: SnP500 index fund (75%) AND Berkshire Hathaway B shares (25%)
from my research I know that in years where SnP500 drops too much (recessionary periods), BRK-B would soften the blow as Value stocks tend to do well in such times. And usually that works for me.
For those unaware (myself included), VT is the Vanguard Total World Stock Index Fund ETF which "tracks the FTSE Global All Cap Index, covering roughly 9,000 stocks across more than 40 developed and emerging markets."
I see this argument a lot online: "You need more diversity." First, you didn't provide any reason or evidence about why this is a good idea. Second, "more diversity" isn't always better.
The S&P 500 has crushed VT since inception (June 2008). Most people will be surprised to learn that adding smaller cap (domestic) stocks, or international developed country stocks, or emerging market stocks will probably reduce your returns. As an example, you can compare the returns of S&P 500 vs Russell 2000 since 2005 [1]. It is not even close -- S&P 500 crushes again. Also, the vol in S&P 500 was lower than Russell 2000.
My investment philosophy comes directly from Warren Buffett: "Never bet against America". Of the three largest economic zones in the world with free markets (United States, Europe, and Japan), the United States is by far the most dynamic. Ask yourself: In the next 30 years (or more), which of those three regions will grow the most? In my view: Absolutely the United States.
Finally, to people who say that you need international stocks in your portfolio else you are "missing out". You don't. Why? The S&P 500 already has 30% of revenues from countries outside the United States. [2]
I do not understand how you can talk about US, EU and Japan but not mention China. Because I'd bet China is in a similar league and has better prospects than any of the three.
This is incorrect. There are lots of ETFs that now directly hold China A shares. CSI 300 index is the equiv of S&P 500 in mainland China. Also, via HK Stock Exchange, you can buy China A shares via "northbound connect". A broker like Interactive Brokers supports this type of trading and the bizarre/special currency (CNH) required for it. That said, I excluded China because it is not developed and has awful transparency.
> The 10 biggest companies in the S&P 500 make up almost 40% of the index, and if Anthropic, OpenAI and SpaceX are added later this year, the concentration could approach 50%, see chart below. The bottom line is that the S&P 500 basically doesn’t offer much diversification anymore.
> My investment philosophy comes directly from Warren Buffett: "Never bet against America". Of the three largest economic zones in the world with free markets (United States, Europe, and Japan), the United States is by far the most dynamic. Ask yourself: In the next 30 years (or more), which of those three regions will grow the most? In my view: Absolutely the United States.
The next 30 years will not look like the last 30 years, and to be frank, this administration impaired any thesis of the US being at the center of the economic world globally for at least the next decade or two. The ultimate strength of the US economy was that global trade centered around the US. That trade is already reconfiguring around the US, and will continue to do so to de-risk and decouple. How is the US supposed to grow with restricted immigration? 21 states already have more deaths than births and this will continue to all 50 states eventually. India and Africa are the last parts of the world where any growth will be found, everywhere else is in terminal population decline.
So! VT reduces your concentration risk from the AI bubble (versus the SP500) while still keeping you exposed to a risk asset class (total world equities) to capture higher returns than you’d get with bonds.
Your backtesting is of no value in this context, the world has changed permanently due to the actions of this administration. Portfolio composition decisions made today are for the future, not the past. Past performance is no guarantee of future results.
https://www.morningstar.com/stocks/you-might-think-industry-... (We see the same results looking at the more recent period of July 1963 to September 2024. US stocks returned 10.64% annually, high-tech stocks returned 11.35%, healthcare stocks returned 11.99%, and both were outperformed by beer, which returned 12.18%, smokes, which returned 14.56%, and guns (defense), which returned 12.77%. Even shops (wholesale, retail, and some services such as laundries and repair shops) outperformed, returning 11.88%)
Stocks, bonds, etc are effectively NFTs of "you own a monkey image". That monkey image can go poof on a 'market correction' aka 95% of investors lose everything.
With precious metals, you own the material. And silver, gold, platinum, palladium, rhodium and others have innate usage for a variety of industrial and jewelery uses. Their prices may change, but catalytics arent just going to bottom out.
We still have stocks, cause 401k's. But we also have a sizable metal buffer now.
PE of 380 against deteriorating margins & profit. This story doesn't end well. But to your point, it's likely a cult of personality that can stay upright until Musk leaves the company.
Circular financing at its finest. And Self-dealing between the hyperscalers, openai, and anthropic.
google invests in anthropic and spacex - and shows appreciated values as earnings. Then it turns around and rents tpus to anthropic to show it as revenues. The main buyers and sellers for all of this are the hyperscalers, openai and anthropic.
It is a game of musical chairs while the party is still on.
You mean the company with such a bad reputation that it had to aggressively rebrand? I take it you've never had the displeasure of doing business with them.
That said it wouldn't surprise me in the slightest to learn that it was one of the most profitable ISPs for investors. That would fit quite well with the general theme of prioritizing the interests of investors over all else.
Comcast is a successful business in spite of their customer satisfaction. You don’t need to please your customers when when you can involuntarily extract their money anyway.
This isn’t hypothetical. SpaceX is increasing Starlink revenue by like 50% per year. And their current Starlink constellation, about 10,000 satellites, has been launched entirely by Falcon 9. They’ve been waiting to launch much larger satellites on starship (in fact they had versions of these ready for several years now, and recently did suborbital tests of some of them on recent starship flights). Starship is about 5-10 times the capacity of Falcon 9, is fully reusable, & has larger diameter allowing much larger satellites. They asked for approval for roughly 40,000 of these larger satellites (~3 times the size of current ones, each about 10 times the bandwidth… and half of the 10,000 are even older designs), and they may eventually do about 100,000 of them & further increase the size and reduce latency (by operating at lower altitude). It’s not an exaggeration to say SpaceX intends to increase bandwidth by at least 100x, maybe a lot more. They intend to use a lot of this extra capacity to expand into mobile coverage as well. They are leveraging their platform for incredibly important national defense capabilities as well, and they operate as their own backhaul using on-board laser links. They can service anywhere in the world that will let them, including lucrative sectors like aviation. I do think it makes sense to value SpaceX as a rapidly growing business, not as a dividend-giving, plateaued ISP like Comcast.
This is all before even mentioning the idea of orbital datacenters.
Many people think their claimed TAM is total fiction, and attempting an actual realistic TAM relies far more heavily on starlink. From morningstar:
> Our base-case forecast entails $56 billion in revenue for Starlink in these niche and growth areas by 2035, representing about 45% of the identifiable market we’ve sized
> Many people think their claimed TAM is total fiction, and attempting an actual realistic TAM relies far more heavily on starlink.
Then either the TAM for Starlink is ~20x bigger than reported by SpaceX (I doubt they would downplay themselves in such a way) or the whole SpaceX TAM is ~5x smaller (much more realistic, if not more than that)
I think the TAM for both is reasonable (it's just generic "Enterprise" stuff, at the end of the day), but I think Starlink is better able to capture a larger portion of its TAM.
That had to be 20 years ago? Not that anyone likes the cable company.
As a comcast customer, their core internet service seems really solid. It comes in through some sketchy 1980s cables installed by some company who got bought by some company who got bought by Comcast. So occasionally a router in the back of a gas station blows up, the cable system wasn't exactly built to AT&T standards.
If you ignore data caps the core service itself does seem to be much better these days than it was 10 let alone 25 years ago. But then again my sample set consists exclusively of locations where they have one or two FttH offerings as competition so it's not as though they could have remained in such markets without upgrading.
Somewhat tangentially I find it surprising how fast MoCA is when you consider the cables it runs on top of.
Not to mention all the IPO rules changes that all but guarantee SPCX will be swept into 401ks and index funds in very short order.
They seem to believe the over valuation can be hidden if the shares get picked up by the public quickly enough or that the it can be a quick exit that leaves the public holding the bag.
My only consolation is that this is so obvious that it's not going to lead to a disaster. Things like the housing crisis happened because long-established institutions like credit ratings and mortgage lenders didnt do their jobs.
It's the swiss cheese model, hidden behind curtains.
This is like a giant sign saying you can buy $2 for a $1.
This is exactly how the dot com crash happened. People point out this like pets.com, but that wasn’t the issue. It was the musical chairs the played with the fiber telecoms. Today it’s data centers.
Profit … to be seen. Compute is not a high margin business and Colossus was idle for enough of its depreciation timeline to put a question on profit. In any case none of this is a better investment than Nvdida because that’s where all the money is going
I feel like your analysis is correct and it’s overvalued but employees and insiders have already been selling shares (eg on platforms like Forge) for around the $130-135 IPO price. So there are buyers, question is if there is enough to consume the liquidity of a $75B IPO.
They won't, SpaceX will weigh less then 1% in most indexes, since they're mostly float adjusted, only NASDAQ will overweight them, but FTSE/MSCI/CRSP/SP will not.
It's still quite some money but it won't crush the market by itself.
Yes, yes it is. (going to be painful) If the IPO gets fully subscribed. For a long time I've pointed out that after the dot com crash the 'unicorns' were mostly on private markets and when they washed out only the 'qualified' investors got hurt (and of course their employees needed to find new jobs). The retail investors were protected because the SEC made sure you couldn't lie to them without penalties.
Once the SEC got defanged, retail investors once again became the primary target.
Do companies like Uber, Tesla, etc ever intend to pay dividends? If a stock never intends to pay dividends, the value of the stock is simply the price the next shumck is willing to pay.
The value of the stock is your share in the underlying business. Because underlying business changes over time (hopefully for the better) you are not simply hoping another shmuck pays you more, like with tulips, whose underlying value does not change with time. You own a portion of a concern that is improving its own fortunes.
Furthermore, dividends are approved by the board once per quarter or once per year. A dividend on a stock is not a contractual guarantee like it is on a bond. Therefore, it cannot be a basis of value.
With your logic, Berkshire Hathaway is a long-running greater-fool tulip bubble whose shares are only bidded up by finding more shmucks.
Well, the value of the stock for people who essentially do not have any meaningful control of the business must essentially be tied to the expectation of some liquidity event down the line -- future cash flows. So this could come in the form of dividends, sale of the stock, bankruptcy proceedings, or a purchase of the business.
If I knew for certain (big if) that a business would never have a liquidity event and I couldn't transfer my ownership then it's dead capital for all intents and purposes and you could consider its value essentially $0, right?
And you can sell your tulip. But if the mania stopped and you suddenly _couldn’t_ find another person to sell it to, would you now be upset you paid $5000 for a tulip? What’s the value at which you wouldn’t be upset? Ok, that’s the intrinsic value of a tulip to you.
The thing about a profitable business that is different from a tulip is that it can at any point decide to issue a one-time or ongoing dividend. It can sell off parts to create cash. It has lots of optionality. Public companies have even more liquidity, which creates more optionality.
Even if you don't have immediate liquidity, it would obviously be worth something to have a slice of e.g. Rolex SA. That's obviously different than owning a tulip.
Dividends are also one way of income in retirement, much more predictably than selling stock. The yields are worse than bonds, but they can be considered to be mostly to rise with inflation, albeit on a year or two delay. Dividends also act as a discipline to keep management focused on the business, since you need to pay real money to shareholders, instead of just doing whatever good idea you have, regardless of whether it is a net benefit to the company.
> The only reason to do a dividend is because people like the feels of getting a cash payout.
Not really, when capital entities came up, the initial goal was to deliver return on invested capital,i.e. something "you get out of the business/back".
Or do you think back in 14th wenn Dutch East India Company was created, that you could by shares and sell them later to a higher bidder after the mission was accomplished? :-)
I disagree with the last statement. The reason why most companies in the US have at least a nominal (one penny per share) dividend is that many pension funds have a requirement to only hold shares that issue dividends. Pension funds are all tax sheltered, so they don't need to worry about paying taxes on dividends. For retail investors, dividends are mostly worse that share buy backs. Why? Dividends are taxed, and the money needs to be reinvested.
Among the oldest value models, the Dividend Discount Model, says that the value of a company's stock is based on the present value of its future dividend payments.
Even if a company doesn't currently pay dividends, it will eventually do so or be purchased by a company that does. That's the theory at least.
As someone who has been looking at equity "value models" for more than 15 years, I can confidently say it is all bullshit. None of them can explain ("predict") price to earnings ratio or price to book value ratio. Sentiment matters much more in equities than any analyst will admit.
The price of a growing business should go up because it has more options to create returns for shareholders.
Use Aldi (revenue ~$120B) as an example. Do you think a person would be a shmuck to buy a slice of it now versus when revenue was $1 million? If not, why not? Your answer will help understand why stock has value even without voting control or dividends.
Google and Meta have a reasonably similar corporate structure. Most of the voting power is concetrated in the hands of a few. They have both done very well since their IPOs. Do you exclude these companies from your portfolio?
Things don't have any inherent value. It is priced at a level that a buyer thinks it is worth.
A gallon of oil can be $3 or $6 depending on whether someone is willing to pay. It can also be $10 but only if people are willing to buy it at $10 if not "prices will come down to match the demand" - another way of saying it would be $9..$8...$7...$6 until it matches a buyer at which point gas is $6.
This is what I am trying to express. There is no "inherent price" or "inherent value" there is only the real value that it is bought at (in terms of money). There can be other values (non money) like if someone is willing to swap something for it etc.
There is no underlying value. It is only how much other people are willing to exchange for it.
So stock marked is always meaningless except considering it is so large and consequanetial and so many people have access to it that it will be rational automagically. This is more of a belief that seems to be fairly correct than a rational line of thinking. This is similar to Democracy in a way
You seem to be operating on the assumption that stock values are just totally and completely random and the fact that Google is worth $4T is just as much of a possibility as Hertz Rental Car being worth $1.5B
If you disagree with the above framing, your reasoning will have to concede the existence of underlying value. Yes, obviously the price of a share is the result of the bid and the ask price in the order book. But those prices are based on something, they are not randomly generated. They are based on conceptions of value. The fact that companies with increasing free cash flow over long periods of time always see increasing share prices over time is not random coincidence.
That example is a bit extreme but I can give two more normal examples.
Google/Nvidia and Apple/Nvidia. I don't think there is a world where nvidia will make more money than google or apple or keep making more money than them.
Also another one is Tesla. In my opinion, there is absolutely no world where tesla is worth the current stock price if you compare it to chineese companies or some company like Toyota.
Ofc at this point it depends on if you believe the stock market is absolutely correct or if it is correct in these specific examples. We can agree that it is correct in pricing Google higher than a car rental company but it is more complicated.
The prices are based on something but that something is so obscure and complicated that I don't see a way to make a calculation out of it outside of American ideology of stock market/capitalism.
> The fact that companies with increasing free cash flow over long periods of time always see increasing share prices over time is not random coincidence
This is just trivially related imo there is no real calculation between these things . And this relation it is breaking more and more lately as far as I can understand. This might mean stock market ideology is starting to diverge from the real world which is scary
how about this: there has been a fairly short-lived, one-time event that boosted NV's revenue and allowed them extraordinary margins. nothing like that is goosing Goog or AAPL.
yes, I'm claiming that the NV-AI hype bubble will pop (which almost everyone expects to one degree or other).
That’s the story, but it’s bullshit. The underlying intrinsic value of a stock can only be materialized if the company liquidates and you receive a share of the sell off of its assets. How many publicly traded companies abruptly decide they’re tired of the business, stop in their tracks, and liquidate their assets? This only really happens if the company is acquired or if it goes bankrupt. Acquisition is the closest the story comes to truth, but it’s also just forced sale to a greater shmuck. If a company goes bankrupt, a tiny fraction of the current stock price would be realized into cash for common investors because of all the privileged investors and lenders ahead of them, not to mention that the actual value of capital assets etc probably doesn’t cover all the losses (the company’s going bankrupt after all). The value of the underlying capital assets are essentially never returned to the common investors, and the idea that you own a portion of them is in practical terms a lie.
> The underlying intrinsic value of a stock can only be materialized if the company liquidates and you receive a share of the sell off of its assets.
This is wildly incorrect. A profitable company can decide to begin paying out dividends, which can eventually return > 100% of the investor's purchase price. A company can issue more stock or bonds to raise cash to pay investors. A company can spin off assets to raise cash to pay investors.
Your framing is very much like a short-term PE investor, and if you look to their playbooks you can see there are many ways for intrinsic value to be realized while leaving an operating business behind. There are any number of stories where PE investors make big profits and then turn around and resell the company for more than they paid.
Yes, the profits it pays out are the one thing that actually makes sense, but the premise of the grandparent post was to ask what a share is worth _without_ dividends. And the answer is that shares are intrinsically worth very little. Liquidation value (actual liquidation - bankruptcy or going out of business or an exchange closure) is rarely ever practically realized for common investors. Even if you’re trading on the discounted expectation of a larger liquidation pie, nearly 0% is still nearly 0%.
Voting rights are also not valuable by themselves - they are only useful to steer the company towards greater future payouts, which means you are appealing to some other entitlement to value.
If you zoom out, a company is a temporary arrangement of people and things that makes more money than it spends _over time_. They are not really designed to accumulate and store value in and of themselves. The machines the employees use to do the work is a small fraction of the overall utility of a living breathing business. The valuable part is the capacity of this techno-social organism to reliably and continuously make profit, which is far greater than the sum of its parts. So if the profit that’s being earned is never paid out to stakeholders, then there’s no point in being a stakeholder. If the profit is redirected to make the organism bigger, then you are trading now-dollars for future-dollars which must be appropriately discounted. If everyone expects a company to do this forever, then the correct price is what the expected liquidation share should be, and that number is basically zero.
Yet, stocks that do not pay dividends exist at high valuations. What that tells you is that modern day stock trading is tulips: the lion’s share of the value derives from a temporarily stable, shared, _correct_ perception that someone else will buy it back from you.
The reality is that general investors are the greater fools in this arrangement. The prevalence of preferred stock is a tell that there are owners and there are “owners”. What we should do is recognize this and admit that the big initial investors and employees themselves are the owners, because they are the group small enough to actually realize liquidation value (should it ever be necessary). The public investors have no realistic claim on that value, so their shares should be more clearly labeled as dividend rights, which would cause them to be priced as such.
By this logic all money is inherently worthless too, and every time you buy a sandwich at the local corner shop you're just passing off that worthless piece of paper to the next schmuck.
In reality, things have value because people believe they have value. That doesn't mean every company that doesn't pay dividends is a speculative tulip bubble.
Excellent question. They may not intend, today, to pay dividends. However, the same question could have been asked about the successful tech companies of the '00s. Companies don't like to start paying dividends until they are fairly certain of their future profit stream and therefore ability to continue paying (and increasing) the dividends in the future.
Apple, Oracle, Nvidia, Cisco, Alphabet, Meta, Salesforce, and Qualcomm all pay dividends now. It's not unreasonable to expect Uber and Tesla to pay in the future. However, the median time after IPO for similar companies to pay a dividend is close to 20 years. So we could expect Uber to perhaps wfstart paying sometime around 2039. Tesla...is Tesla so who knows?
There are lots of US companies that pay dividends. Another commentor lists some tech companies that do, and there are lots of other types of businesses that do. A quick internet search will give you a list.
You are correct that stock buybacks are another way that companies reward their shareholders.
Not really, the company reinvests the dividends, increasing the value of the company/stock.
The big difference is you pay taxes of dividends - you don't pay taxes on the stock going up year over year. Unrealized gains compound much faster than realized ones.
> To say SpaceX is overvalued is to even beginning to convey the magnitude of the situation. It's going to be very painful when the valuation normalizes.
The scale of corruption in trying to use Index-Funds and Retail investors as the exit liquidity to bail out the VCs who were pumping the AI hype is unheard of.
It's become so damn brazen! I'm surprised Musk's image hasn't crumbled in front of his fan-bois.
I love this clip (this is the other guy that predicted the 2008 crash, played by Steve Carell in The Big Short). Cult Stock is a great way to think about it.
> It's going to be very painful when the valuation normalizes.
Painful for everyone except the grifters who are engineering this and can get out early enough with their stolen millions and billions. Musk's companies are just a giant pyramid scheme.
Is it the case that if someone doesn't do something some time then they can't do that thing? Like, if you were playing basketball and Lebron James walked by and you threw the ball to him and said "dunk this!' and Lebron said "no, I'm not willing to" does this mean Lebron can't dunk?
Because personally, I'd still take Lebron on a basketball team even if he wasn't willing to dunk the ball that one time.
> if you were playing basketball and Lebron James walked by and you threw the ball to him
Yes, this is a terrible analogy for the war in Iran. Hugely unpopular, costing Americans vast sums of money daily, headed for possible catastrophe. Very much not a low-stakes "Lebron walks by" situation.
Better analogy with Lebron would be: championship game with a title on the line. He gets possession as time runs down and the team needs him to score or make a play that scores. It's not okay for him to then say he's fully capable of scoring but doesn't want to at just that moment for reasons.
NB: this is not to say the US military couldn't cause untold damage on the region. This is obvious, anybody can look at recent history to see that the US military is more than capable of destroying a country in the region.
Rather, this is an object lesson that war is politics by other means, and here we tried to do war without any politics and it has not gone well for us.
I will remember from now on that you can compare war to Lebron playing in a championship game but not to him playing in a pickup game.
But to be clear, the comment I replied to was one in which you made an abstract point that it doesn't make a difference to someone if you can do something but in practice don't/aren't willing to and I think that this is obviously wrong (just because Lebron didn't dunk doesn't mean he can't or is a bad ball player). You don't like the Lebron analogy, that's fine. Let's use a war analogy: in 2025 Pakistan and India, two nuclear armed countries, exchanged significant fire. Neither was willing to use their nuclear arsenals. Should we now conclude from this that they can't use their nuclear arsenals and are therefore equivalent to being non-nuclear countries? I mean who cares if they have nuclear weapons which can (can't?) kill millions if this one time their political will wasn't there for them to use them in their defense?
> Rather, this is an object lesson that war is politics by other means, and here we tried to do war without any politics and it has not gone well for us.
Be careful not to trip over your rhetoric in an attempt do display profundity. If war is politics by other means, then doing war is always done with politics. This whole statement is word salad nonsense.
> I will remember from now on that you can compare war to Lebron playing in a championship game but not to him playing in a pickup game.
The stakes of a given situation matter to the disposition of the participants. Is this not obvious?
I'm really confused as to what your larger point is. Nobody disagrees that the US military can kill untold numbers of people and cause untold damage in Iran and the wider region. Was this the point you wanted to make? Yes, the US military is capable of killing everyone in the region, which would make the Strait "open" again.
> If war is politics by other means, then doing war is always done with politics.
The problem is doing so has not/does not appear to be on a path to achieve the stated political aims of the administration, inasmuch as they have been willing to articulate aims.
Anyway, you're being insulting and not making coherent points. Good evening/morning/afternoon.
Wanting the US to be successful in worthy endeavors was considered pro-US when I was born. Call me a conservative if you want because I think we should still support that way of thinking. But I don't see myself changing to support failure just because the US is doing it.
> how come nobody is talking about it?
Nobody is talking about the war? I suggest you revise your media diet.
His statement about war and politics is a reference to Clausewitz, the famous military strategist that apparently you have not read nor have heard referenced, which is surprising given how often this quote comes up in military-political discussions, articles, and books.
(It’s ok, nobody in the administration has read him either. And before you accuse me of partisan hackery, the prior admin was just as incompetent.)
This doesn't really address the issue here. The condition here is that a site might decide that it needs to store (say) a copy of the Red Hat server installation package on each user's local machine (20GB) to facilitate repeat visits.
The stored data is not related to the user at all. The problem is that the website gets to silently write 20GB to the user's disk.
"On Chrome and Safari, OPFS supports very large files, up to 60 % of disk space, which is more than sufficient to avoid the page cache on most typical systems, as even a small disk size of 64 GB would allow us to create a 38.4 GB OPFS file."
I am indeed surprised to learn that a random website can write a file that takes up 60% of my disk. Is this obviously a capability of Web browsers?
Not only that, but they don't even provide any visibility into what's being stored. Firefox developer tools doesn't even have OPFS browser functionality. IIRC I even saw some stuff about going out of the way to make it inaccessible by the user.
There's a whole trend with websites not uploading anything to their servers due to privacy and whatnot, where do you suppose the data is being saved for repeat visits...
You make a reasonable point, while kilobytes might be too little it probably shouldn't be 30gb. 5gb might be ok. In the settings it should be possible for the user to set their own limit. I am not familiar with browser storage but there is hopefully a mechanism to inform the user that their limit might not be enough.
I think that when I install an app, typically it will tell me up front how much disk space is required. For example, in the Mac App Store, the size of the app is at the top of the page.
> Should those also be limited to a few MB?
I also want to highlight that many/most websites that think of themselves as apps are at odds with their users in that perception. As an engineer, I know full well that e.g. the URL https://homedepot.com is powered by a sophisticated set of apps. But most users think it's a website.
This is important because people do & should have a different relationship with software they have chosen to install on their machines and websites. Yes, I know e.g. Figma.com does complex client-side stuff. Every Figma user would click a dialog to grant permission for it to do what it needs to do.
The problem is the current state of the art is that literally any website can spam up your disk and you don't even know. If I visit the website for a local radio station, or an e-commerce site, or university, or a site that will tell me what time it is now in a different time zone...I do not expect that it will download tons of data and store it on my disk in case I come back. That some engineers think that is reasonable is why the browser sandboxes need reinforcement.
I'd be willing to bet most (younger?) users don't know what the difference between an app and a website is. Can't really blame them when the line between them has been blurring more and more over time. I think a growing number of users wouldn't even mention installing as a differentiator because you install PWAs (except on iOS).
Anyway, I think an important bit of information that was lost here is that browsers automatically purge data so that your disk doesn't fill up. If you're running low on space it will clean it up for you to make room.
> I do not expect that it will download tons of data and store it on my disk in case I come back. That some engineers think that is reasonable is why the browser sandboxes need reinforcement.
It's a reasonable thing to do for an app, so why not a website/PWA? Video games are a pretty good example where some stream assets while you are playing so that you don't have long install/update times. Getting in game faster is more important.
Ten movies streaming across that, that Internet, and what happens to your own personal Internet? I just the other day got... an Internet [email] was sent by my staff at 10 o'clock in the morning on Friday. I got it yesterday [Tuesday]. Why? Because it got tangled up with all these things going on the Internet commercially. [...] They want to deliver vast amounts of information over the Internet. And again, the Internet is not something that you just dump something on. It's not a big truck. It's a series of tubes. And if you don't understand, those tubes can be filled and if they are filled, when you put your message in, it gets in line and it's going to be delayed by anyone that puts into that tube enormous amounts of material, enormous amounts of material.
> I think enough would refuse (clearly illegal) orders
The military executes clearly illegal orders to attack civilians on speedboats in the Pacific a couple of times a week. Not infrequently, they also kill the occupants when they are surrendering.
Worth noting that the period you indicate is a an example of an America largely deploying inventions from the UK (e.g. the steam engine, steam locomotive, etc.).
The latter part of the 20th century and first part of this century is a story more of the US driving invention and deploying those inventions.
The techniques needed to go from lesser power to leading power are different from those needed to advance as a leading power. For Lebron to stay on top, he has to do different things than any of us would need to do to get into the NBA.
Different circumstances & different goals require different strategies.
I read this totally differently. A startup nobody really knows is doing half a percent of Google on a commodity task?!? Google, which puts Gemini on billions of devices by default, without the user asking? Google, which is distributing Gemini to users who are unaware they are even using it?
Versus a startup that does not even have a login button on its homepage?
Unfortunately, the market doesn't generally let you buy Blackwells with "we got half a percent of Google's marketshare with a model we're literally giving away for free [1]". You need that thing we call Capital. But, they may certainly opt to have it written on their gravestone, as Google is (checks notes) continuing to put Gemini on billions of devices and doing quadrillions of tokens per month.
This is a bizarre comment for a couple of reasons.
First, obviously everyone involved understands that someone has to pay to provide a free service. Everyone involved also knows that this sometimes makes sense as a business strategy (I have not paid to ship anything from Amazon for close to two decades).
Second, OpenRouter's business model specifically does not require them to run all (any?) of the models available through the platform. Provider is one of the choices when you choose a model, and each provider can have separate pricing.
The link you posted shows only one provider, Crucible. That may/may not be affiliated with OpenRouter? Even assuming an affiliation, it's opaque who is subsidizing this usage. Is it OpenRouter or Crucible?
All of this is somewhat of a distraction. Even if someone gave search away for free (like Google), it would still be an accomplishment to get to half a percent of Google's volume. Or to sell half a percent of the volume of Android phones. Or whatever.
In the statement "we got half a percent of Google's marketshare with a model we're literally giving away for free" the term "we're" here refers to the conglomeration of "DeepSeek" (for making a model small enough to be capable of being hosted for free) and the model providers who do offer it for free (why they do this is... unknowable). It does not refer to OpenRouter, who are merely middlemen.
My original DeepSeek v4 Flash token counts spanned all providers of that model, both paid and free; I merely pointed out the free provider to substantiate a point that DeepSeek's product may be so bad that they could quite literally give it away and people would still prefer to pay (a lot) to OpenAI, Anthropic, or Google. Why this is the case, I leave as a exercise to the reader; I'm just citing numbers and facts.
Not to mention, week on week more and more tokens are being processed via OpenRouter. [0]. The number keeps going up, with no end in sight in my opinion, if the China models continue offering cheaper inference, whilst tailing behind not too far, the line will keep going up.
OpenRouter is not the only "router" type AI company. More fixed providers like OpenCode and commandcode are offering subscription services on open/china models, likely consuming billions of tokens each. Who know how many tokens are being process directly against Deekseek and Kimi's APIs.
This is a datacenter REIT bolted onto a social media company bolted onto launch business bolted onto a niche ISP. The expected price to sales is ~100x. The best datacenter REITs trade at ~10x and pay a dividend, which SpaceX does not. Meta trades at ~7x sales. Comcast is one of the best-run ISPs, and it pays a 5.5% dividend on a stock trading at < 1x sales.
To say SpaceX is overvalued is to even beginning to convey the magnitude of the situation. It's going to be very painful when the valuation normalizes.
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