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SpaceX: no crying at the casino

Plus, Magnificent 7 RIP

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Robert Armstrong and Daire MacFadden

PublishedJune 15 2026

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Good morning. Yesterday, Donald Trump announced that the US and Iran have reached a deal to extend their ceasefire and reopen the Strait of Hormuz. While it is always hard to be completely certain with Trump, confirmation from other parties — including officials from Iran, Pakistan and Qatar — lends some credibility to the agreement. We welcome the end to the fighting, and the markets should also welcome the reopening of the Strait. Email us: [email protected].

SpaceX

SpaceX’s IPO, the largest ever both by valuation and size of float, rose almost 20 per cent on its debut on Friday. This is a big deal, but a lot has been written already, so we confine ourselves to two observations.

We haven’t seen anything resembling market pricing yet. Both supply of and demand for the shares are still in flux. On the demand side, waves of price-insensitive demand are coming from index-linked funds in the near future — over $16bn worth within 15 days of Friday, according to BNP Paribas (that assumes a $75bn final float; filling the $11bn “greenshoe” overallotment option will increase the passive buying). That means those who were allocated shares in the IPO could always expect an upward price “squeeze,” especially on the assumption that some buyers are Musk fanboys who will hold on to their shares for dear life. It’s not quite a guarantee of a profit (James Mackintosh of the WSJ explains some of the risks here). But it’s close.

On the supply side, up to 911mn shares held by insiders become eligible for sale the day after SpaceX reports earnings for the June quarter, presumably sometime in mid-July (see the table beginning on page 258 of the prospectus here). If the share price is above $175.50 that day, the ceiling rises to 1.4bn shares. Remember, only 555mn shares were sold in the IPO. Between the second-quarter earnings report and year-end, nearly 3.3bn more shares became eligible for release, with more to follow. Price discovery is going to take a long time.

Pundits are worried about SpaceX, but worries are cheap. The worrying class — that is, my class — has two related concerns about this IPO. One is that it was a massive fix by the finance industry, motivated by a mad grab for fees. This is exemplified by, for example, Nasdaq’s changing its index-inclusion rules to get SpaceX in quickly and in spite of its small free float, and JPMorgan Chase CEO Jamie Dimon’s decision to act as salesperson for the stock. The other is that putting a $1.75tn valuation on a cash-burning company in industries that are somehow both speculative and incredibly competitive is plain crazy.

Fair enough on both points. If SpaceX stock collapses in the next year or so, we’ll have congressional hearings with Musk, bank CEOs and all the trimmings. But everyone knows we are riding high on an investment boom, a stock market boom, and a technological revolution. Saying “all this could end very badly” now will not count as prescience, even if all this does end very badly. It is a costless thing to say, the risks are obvious, the buyers are adults, and there’s no crying at the casino.

[ Armstrong]

Elegy for the Magnificent 7

Coining a tradeable concept is difficult. It requires both wit and dumb luck. The last decade gave us a series of attempts to describe market trends in pithy nicknames or acronyms, but few caught on. During a prolonged bout of weak performance in the wider stock market, though, the Magnificent 7 emerged as an investable concept with staying power. At its peak in mid-2024, the seven megacap tech stocks in the Mag 7 accounted for 79 per cent of the S&P 500 index’s total return.

But everything must come to an end. A concept that bundled together companies based on little in common beyond scale and having something to do with tech, the Mag 7 has failed to keep up. “The concept has become obsolete,” Hugh Gimber of JPMorgan Asset Management said last week. The Mag 7 is becoming the Brics of tradeable concepts*: an incongruous group with diverging fundamentals and fortunes. As the Faangs gave way to Mag 7 (who still speaks of Netflix?) the Mag 7 is starting to give way to something else, too.

The overriding story here is investor discernment. In the early stages of the AI boom, in 2023, a rift opened up between the hyperscalers, which had the cloud and compute infrastructure to ride the wave, and the semiconductor companies, or rather manufacturer: Nvidia in a class of its own.

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While the hyperscalers (other than Meta, which had enjoyed a sharp recovery after extinguishing the Metaverse dumpster fire) have continued to move in tandem, Nvidia has split from the pack, outperforming the Mag 7 index by nearly 500 percentage points since early 2023. The Mag 7’s returns are increasingly Nvidia’s:

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For the first couple of years of the AI boom, this was fine. The Mag 7’s earnings growth outpaced the broader S&P 500. But now that the hyperscalers are having to invest so heavily in the AI infrastructure build-out (with gains going predominantly to Nvidia and other chipmakers), their earnings growth is falling. While the boom is showing up in Nvidia’s earnings today, there’s a very real question about when the hyperscalers’ capex spending will start to pay off. Chart courtesy of JPMorgan Asset Management:

The divergence in earnings is showing up in how investors are trading these stocks too. According to analysis by JPMorgan Asset Management, the pairwise correlations of daily returns among the hyperscalers — a measure of how closely they move together — have fallen sharply, from around 0.6 in 2023 to below 0.3 today. Even the hyperscaler subset of the Mag 7 is no longer being treated as a single trade. Their chart again:

Another point: Apple no longer fits with the hyperscalers Microsoft, Alphabet, Amazon and Meta, as it is, so far, sitting out the data centre capex wars.

The Mag 7 concept won’t disappear tomorrow. The seven companies still make up about a third of the value of the S&P 500. One of the factors delaying the concept’s fade-out is that the S&P has decided not to fast-track SpaceX and the forthcoming IPOs of Anthropic and OpenAI into the index. But whatever else happens in the stock markets this year, Mag 7 is on the way out.

A reader, Sagar Gohel, wrote to us last week with a suggestion for its successor: Mangos — Meta, Anthropic, Nvidia, Google, OpenAI, SpaceX. Wit? Present. Timing? TBD.

(*You may be surprised to learn that the Brics are still part of the business studies A-level curriculum. We certainly were.)

( MacFadden)

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China at the gym.

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