Tech wreck or tech correction? Why stocks are shuddering
ABC News (AU)·July 20, 2026
AI Summary
Global stock markets experienced significant volatility following Elon Musk's latest AI venture, which initially drove prices to record levels. However, the company's subsequent underperformance is raising concerns about whether the current AI boom can sustain its momentum.
Sentiment around semiconductor stocks has been volatile as investors ride the AI boom. (ABC News: Mitch Denman Woolnough)
There was a certain inevitability that Elon Musk's latest adventure would disappoint.
Overhyped? Undoubtedly. Overpriced? Absolutely.
That it has taken just a month for its shares to descend below its float price doesn't augur well for the company or the future of the AI boom.
It is a boom that has sent Wall Street and lesser-known markets like South Korea's KOSPI to dizzying heights, fattening up Australian super funds along the way.
It also serves as a stinging rebuke to the army of investment banks and their analysts who promoted the company's prospects and bought into Musk's bizarre vision of the future.
And then there are the market operators at New York's Nasdaq, who rewrote the listing rules just to accommodate the world's first trillionaire.
Finally, it has brought the US Securities and Exchange Commission into focus, since its decision last December to relax the rules — introduced after the dotcom crash — around stock analysts.
Almost all of us now own a slice of SpaceX, whether we like it or not.
Even if you're not directly exposed to it, the company has the capacity to influence global markets purely by virtue of its gargantuan valuation.
And, remarkably, it is a loss-making company totally dominated by one person; a man obsessed with becoming the richest person in history who, while undoubtedly brilliant as a salesman, routinely descends into bouts of extremely odd behaviour.
Elon Musk became the world's first trillionaire with the SpaceX IPO. (Reuters: Joe Skipper)
For months, there have been concerns the mania surrounding artificial intelligence (AI) was on the brink of unravelling.
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And then, over the weekend, another Chinese start-up, known as Moonshot, from out of nowhere, released an AI model that rivals and, on some measures, even outperforms the flagship versions from Anthropic and OpenAI.
Its new Kimi K3 model, developed at a fraction of the cost, has the potential to spark a price war for AI services that could jeopardise the huge expense racked up by the US tech giants in their race for domination.
It could also seriously dent their ambitions to raise more money.
Will Musk's ascent to the pinnacle be the defining moment in a bold new era? Or will it represent peak stupidity in the dying days of a boom?
Almost every major investment bank on Wall Street had its fingers in the pie when SpaceX raised $US85 billion ($121 billion) last month through its initial public offering.
The fee frenzy generated about $US500 million.
You only need a glance at the analyst reports to realise they've, en masse, turned into disciples.
SpaceX hit the Nasdaq to much fanfare in June. (Reuters: Brendan McDermid)
Of the 19 analysts now covering SpaceX, 18 have declared it a buy, with only one advising investors to hold. Not one denoted it a sell, even though the shares are now underwater.
Deutsche Bank described the company as "the apex of civilisational ambition" while JP Morgan claimed the company's "impact on humanity would be bigger than we've ever seen".
Another investment bank, Raymond James, proffered that, "just as railroads, electric grids and the internet reshaped prior economic eras, we believe SpaceX is building the foundational platform for the next generation of industrial capacity".
That may well come to pass because there is no doubt the technology works.
But it was an unfortunate comparison, given the investment mania surrounding both the railroad boom and the dotcom boom blew up in spectacular style, sending markets spiralling and bankrupting legions of investors.
Given SpaceX loses money, it is almost impossible to put a price tag on the shares. So, instead of profits, the analysts look at sales revenue.
And it's at this point that the analysis abandons any sense of logic.
Goldman Sachs says the shares should rise to $US205 each within the next 12 months. Morgan Stanley says $US300.
That's 139 times the company's revenue. Not profit, revenue. In Morgan Stanley's case, it's 203 times the revenue.
On their own reckoning, it'll take between 139 and 203 years for the revenue to cover the cost of SpaceX stock. And that's only if it converts all that revenue into profit. Otherwise, it'll take far longer.
Spruiked as an AI company with plans to build data centres in space, SpaceX is a bit player in the field with just 3.5 per cent of the market.
It is a grab bag of businesses incorporating social media, with its X platform, a rocket launch business, satellite internet and AI.
Its huge ambitions, particularly regarding AI, come bound with a voracious appetite for funds.
It wasn't just the humidity in wet-season Seoul yesterday that had residents and onlookers across the globe in a sweat.
South Korea's stock market endured another punishing round of losses yesterday as its tech boom continued to unravel.
Once a niche market for international traders, in the past year the KOSPI has taken centre stage in a tech boom and bust that is threatening to go global.
The KOSPI boomed with the rush to AI and the demand for semiconductors built in South Korea. (Supplied: Trading Economics)
It dropped another 5 per cent yesterday as retail investors, many of whom had borrowed to cash in on the boom, were forced to surrender.
Since its peak in late June, the KOSPI has plunged almost 30 per cent, with the market operator forced on several occasions to suspend trading after losses exceeded 10 per cent.
Trading was halted for five minutes several times on Monday, as selling gathered pace after a Friday holiday, and as investors digested the latest developments in China's AI war with America.
For the past year, the stock prices of South Korean chipmakers specialising in AI have soared as demand for their chips has driven an earnings bonanza which helped treble the total market value.
Stocks in South Korean chipmakers have soared on the back of the AI boom but that boom has started to unravel. (Reuters: Angelina Katsanis)
Some of the world's biggest AI memory chipmakers, such as SK Hynix and Samsung Electronics, have been among the biggest beneficiaries but have since come under a wave of selling pressure.
The extreme action, however, hasn't dented the enthusiasm for some. Citi analysts reckon the market is still destined to head back towards 10,000.
That's a 50 per cent gain on current levels.
This time next week, Moonshot will release an even bigger model of its new AI platform.
Given the 38 per cent slump in SpaceX's stock since its post-float peak, the timing couldn't be worse.
Anthropic and OpenAI, which have been neck and neck in the race for AI domination, were already facing significant challenges in their ambitions to list on the stock exchange.
Moonshot's new model reportedly costs around 40 per cent less than the two big US rivals. It too is looking to list but on the other side of the Pacific, in Hong Kong.
Like SpaceX, OpenAI and Anthropic have been valued at extraordinary levels, again based on revenue rather than earnings.
The two big US firms have signed a multitude of deals, both financial and service, with all the other major tech companies for the supply of chips, cloud services and computing power that ties them all together.
That creates a climate for potential contagion where problems at one operation flow through to the rest.
The huge investment in AI — estimated to total $US7.3 trillion by the end of the decade — was always going to be difficult to justify.
New Chinese players entering the field will undoubtedly grab market share.
With cheaper development costs, their AI services are likely to undercut those of the Wall Street titans, both taking market power and undercutting revenue streams, which will then flow back up the chain.
Maintaining those lofty valuations was always going to be a challenge, as Musk is discovering.
It is a lesson that could ricochet through financial markets soon. And one that all of us may learn.