How do you factor the Great Wealth Transfer into this timeline?
Millennials are already structurally more risk-takers than their boomer parents. If a massive wave of inherited capital hits a generation that doesn't strictly 'need' it to survive, it feels like an unprecedented volume of permanent risk-capital entering the system.
Does this structural shift act as a counter-weight that kicks your 2027 timeline down the road, or does it just supercharge the ultimate pro-cyclical top?
Today is 16 June, two trading days after the SpaceX IPO and retail is selling AI to buy in to the Musk hype machine.
SpaceX ($SPCX) held its $2 trillion value into a second close. That doesn't really matter.
The part that matters is that retail funded the buying by dumping chip names, with Micron and Marvell among the heaviest sold, the biggest single-stock retail selling since late 2023.
Interesting. The concentration and capital reallocation arguments were the parts that stayed with me. Whether the scenario plays out exactly as described or not, they're difficult to ignore in a market dominated by a handful of companies.
I am a bit skeptical of any forecasts regarding stock price movements based on mechanical explanations. They fail more often than the toss of a coin. Let’s not forget that for every seller there is a buyer and for every buyer there is a seller. What I want to say with this is, the intuitive idea of money being locked up somewhere is completely irrational (unless you put it under the mattress). The early IPO investors and insiders selling will use the money to buy other stuff, including other financial assets. We could get into second order effects considering the velocity of money, investor psychology and so on, but we simply don’t know and any discussion will be speculative.
As a value investor, what I see is: unprofitable companies that need continuous capital injections reaching market capitalizations once reserved for the incumbent tech stars, overcapitalized mega caps now pouring trillions into an investment that might not pay off just to keep up (competition) while cutting buybacks, and high multiples across the board.
Every single new technology has ended up benefiting the consumer disproportionately and AI will be no different. In an interesting interview I heard some time ago with the CEO of Burford, he was explaining how ownership of law firms by non lawyers was prohibited in most parts of the US and the founders find it difficult to cash out at the same time that they need to invest in AI to remain competitive. An interesting dynamic.
Indeed, as always, there are nuances here. We don’t know what proportion of the sellers will reinvest, how much capital will stay within tech, or how quickly new money might come in.
That’s why we framed this as a possible scenario rather than a forecast. One thing I suspect though, is that retail will play an important role in all of this.
Great article James. There is an additional dimension of risk in this AI focussed eco system: circularity. For instance, MSFT owns a stake in OpenAI and funds OpenAI. Part of the money open AI received goes back to MSFT as revenues for openAI using their compute. To be exact: Microsoft pays OpenAI for models → embeds them in Azure/Bing → charges customers → shares revenue back to OpenAI → OpenAI pays back Microsoft’s cloud bills. There is no real accretive value creation right now. If one domino falls, so will the others - brutally I suspect.
Great point. People have been pointing out the crazy circularity in the AI ecosystem for a while now. The same players are funding each other, selling and buying from each other, and validating each other’s valuations. It works great on the way up, but when the music stops, that same circularity will make the whole thing implode.
Gene, you are spot on. This 'circularity' isn't limited to the AI ecosystem; it is a structural feature of modern institutional power.
At ABN AMRO and VPVA, I am witnessing an identical mechanism: a circular loop where the bank and the notary validate each other's 'compliance' through internal narratives and external façades, while carefully excluding any objective verification of the actual brondata.
My audit is the external 'shock' to this circularity. By demanding the underlying Wwft-documentation, I am forcing a confrontation between their closed loop of self-validation and the reality of the law. We are currently on day 33 of this deconstruction. Once the circularity is broken by forensic facts, the façade collapses—just as you predict for the tech bubble. https://ap.lc/jrGBL
The circularity can be compared to inbreeding in biological systems. Too much inbreeding weakens the organism; too much internal validation weakens institutions in the same way. In both cases, the closed loop preserves existing traits while amplifying hidden defects-financial or biological, eventually leading to fragility and collapse.
This is a very interesting and insightful perspective. Just like someone else had mentioned it really does make you realize that financial markets are like a roller coaster ride.
Fun article to read. It just makes you realize that the markets are a real rollercoaster ride. Buy good assets and forget about it. The long term charts are up and to the right...always. But we live in the short run. The people who do really well in stocks are 1. people like Charlie and Warren who buy right and sit tight. And 2. People who know nothing and buy and forget they even own the thing. All the rest of us get our pockets fleeced.
This is a well thought out scenario based on very plausible assumptions. Congrats on your first rate analysis!
My only observation is that SpaceX, OpenAI and Anthropic are trillion market cap companies still burning billions of cash and cashflow negative that will need follow-on equity offerings unless they magically inflect to cash flow positivity. These follow-on offerings may increase the supply while lock-ups expire, compounding the problem.
The very reason companies go public is because they need cash to further the mission. If they didn't need cash , they could stay private and not give away chunks of the company to investors. Sure they are burning cash, but for how long ? That is the challenge the company faces. Had Elon not overpaid for Twitter (44B), he wouldn't have to worry so much. I think he owes 20B to Twitter folks. Once he is relatively free of debt, he can function much better and with less pressure.
The whole financial system is a scam. Everything, banking Federal Reserve, stock market, interest rates, precious metals prices, etc. When most of the value in the market rides on the nebulous strength of 7 or so companies you know something is wrong. Where is the industry and where are the jobs in the US. It’s all monopoly money, and we aren’t players, we are the property.
Expected float at this stage is less than half a percent of the total US market cap. I think the risk of an overall market supply shock is over stated, but I agree that it is likely to add to the frenzy and act as exit liquidity at the expense of retail. Great read. TY!
Thank you for your kind words. The initial float will start small by design to squeeze the price high on limited supply, and then the accelerated lock up release will see the float increase at pace and the float expand by multiples. All explained in the post. That's what is likely to cause the roller coaster effect.
Fascinating thesis on liquidity fragmentation.
How do you factor the Great Wealth Transfer into this timeline?
Millennials are already structurally more risk-takers than their boomer parents. If a massive wave of inherited capital hits a generation that doesn't strictly 'need' it to survive, it feels like an unprecedented volume of permanent risk-capital entering the system.
Does this structural shift act as a counter-weight that kicks your 2027 timeline down the road, or does it just supercharge the ultimate pro-cyclical top?
Thank you for your comment. My 2027 wasn't a prediction. It isn't a timeline. It was simply a thought experiment.
There are many factors that will come into play. None of us can know what the future holds.
If you want to dig deeper on this theme, I just published a series of three essays that explores some other themes that you may like to think about. https://rockandturner.substack.com/p/13-squeezed-out-of-the-economy
Today is 16 June, two trading days after the SpaceX IPO and retail is selling AI to buy in to the Musk hype machine.
SpaceX ($SPCX) held its $2 trillion value into a second close. That doesn't really matter.
The part that matters is that retail funded the buying by dumping chip names, with Micron and Marvell among the heaviest sold, the biggest single-stock retail selling since late 2023.
Interesting. The concentration and capital reallocation arguments were the parts that stayed with me. Whether the scenario plays out exactly as described or not, they're difficult to ignore in a market dominated by a handful of companies.
I am a bit skeptical of any forecasts regarding stock price movements based on mechanical explanations. They fail more often than the toss of a coin. Let’s not forget that for every seller there is a buyer and for every buyer there is a seller. What I want to say with this is, the intuitive idea of money being locked up somewhere is completely irrational (unless you put it under the mattress). The early IPO investors and insiders selling will use the money to buy other stuff, including other financial assets. We could get into second order effects considering the velocity of money, investor psychology and so on, but we simply don’t know and any discussion will be speculative.
As a value investor, what I see is: unprofitable companies that need continuous capital injections reaching market capitalizations once reserved for the incumbent tech stars, overcapitalized mega caps now pouring trillions into an investment that might not pay off just to keep up (competition) while cutting buybacks, and high multiples across the board.
Every single new technology has ended up benefiting the consumer disproportionately and AI will be no different. In an interesting interview I heard some time ago with the CEO of Burford, he was explaining how ownership of law firms by non lawyers was prohibited in most parts of the US and the founders find it difficult to cash out at the same time that they need to invest in AI to remain competitive. An interesting dynamic.
Indeed, as always, there are nuances here. We don’t know what proportion of the sellers will reinvest, how much capital will stay within tech, or how quickly new money might come in.
That’s why we framed this as a possible scenario rather than a forecast. One thing I suspect though, is that retail will play an important role in all of this.
Really interesting stuff! Sharp analysis and plausible.
Yes sir. And don’t forget the BTC collapse and interest rates rising.
Great article James. There is an additional dimension of risk in this AI focussed eco system: circularity. For instance, MSFT owns a stake in OpenAI and funds OpenAI. Part of the money open AI received goes back to MSFT as revenues for openAI using their compute. To be exact: Microsoft pays OpenAI for models → embeds them in Azure/Bing → charges customers → shares revenue back to OpenAI → OpenAI pays back Microsoft’s cloud bills. There is no real accretive value creation right now. If one domino falls, so will the others - brutally I suspect.
Great point. People have been pointing out the crazy circularity in the AI ecosystem for a while now. The same players are funding each other, selling and buying from each other, and validating each other’s valuations. It works great on the way up, but when the music stops, that same circularity will make the whole thing implode.
Gene, you are spot on. This 'circularity' isn't limited to the AI ecosystem; it is a structural feature of modern institutional power.
At ABN AMRO and VPVA, I am witnessing an identical mechanism: a circular loop where the bank and the notary validate each other's 'compliance' through internal narratives and external façades, while carefully excluding any objective verification of the actual brondata.
My audit is the external 'shock' to this circularity. By demanding the underlying Wwft-documentation, I am forcing a confrontation between their closed loop of self-validation and the reality of the law. We are currently on day 33 of this deconstruction. Once the circularity is broken by forensic facts, the façade collapses—just as you predict for the tech bubble. https://ap.lc/jrGBL
The circularity can be compared to inbreeding in biological systems. Too much inbreeding weakens the organism; too much internal validation weakens institutions in the same way. In both cases, the closed loop preserves existing traits while amplifying hidden defects-financial or biological, eventually leading to fragility and collapse.
This is a very interesting and insightful perspective. Just like someone else had mentioned it really does make you realize that financial markets are like a roller coaster ride.
Fun article to read. It just makes you realize that the markets are a real rollercoaster ride. Buy good assets and forget about it. The long term charts are up and to the right...always. But we live in the short run. The people who do really well in stocks are 1. people like Charlie and Warren who buy right and sit tight. And 2. People who know nothing and buy and forget they even own the thing. All the rest of us get our pockets fleeced.
This is a well thought out scenario based on very plausible assumptions. Congrats on your first rate analysis!
My only observation is that SpaceX, OpenAI and Anthropic are trillion market cap companies still burning billions of cash and cashflow negative that will need follow-on equity offerings unless they magically inflect to cash flow positivity. These follow-on offerings may increase the supply while lock-ups expire, compounding the problem.
The very reason companies go public is because they need cash to further the mission. If they didn't need cash , they could stay private and not give away chunks of the company to investors. Sure they are burning cash, but for how long ? That is the challenge the company faces. Had Elon not overpaid for Twitter (44B), he wouldn't have to worry so much. I think he owes 20B to Twitter folks. Once he is relatively free of debt, he can function much better and with less pressure.
nah they aint gonna let it crash. just print mo money
The whole financial system is a scam. Everything, banking Federal Reserve, stock market, interest rates, precious metals prices, etc. When most of the value in the market rides on the nebulous strength of 7 or so companies you know something is wrong. Where is the industry and where are the jobs in the US. It’s all monopoly money, and we aren’t players, we are the property.
Invert. Always invert.
Article could be half the length . I suggest less use of AI. Agree with the overall thesis and idea. Thank you
Expected float at this stage is less than half a percent of the total US market cap. I think the risk of an overall market supply shock is over stated, but I agree that it is likely to add to the frenzy and act as exit liquidity at the expense of retail. Great read. TY!
Thank you for your kind words. The initial float will start small by design to squeeze the price high on limited supply, and then the accelerated lock up release will see the float increase at pace and the float expand by multiples. All explained in the post. That's what is likely to cause the roller coaster effect.