1) I wonder whether we'll look back on today as the day the AI bubble cracked...
Blogger Ed Zitron somehow got ahold of ChatGPT maker OpenAI's financials – and the numbers are shockingly bad.
I've been bearish on the company since last year (archive here). As I've warned again and again, it has no viable business and is rapidly losing ground to other AI chatbots – Anthropic's Claude among business customers and Google's Gemini among consumers.
As I've said before, I think OpenAI is destined to be this year's WeWork – but on steroids. WeWork's peak valuation was "only" $47 billion, whereas OpenAI's post-money valuation in its last funding round was $852 billion!
And the company's leaked financials further support my belief that it's the greatest cash-burning furnace of all time. The numbers Zitron posted are hard to believe, but they've been confirmed by the Financial Times...
In 2024, OpenAI had $3.7 billion in revenue, $12.4 billion in expenses, and a net loss of $5.1 billion.
In 2025, revenue soared 253% to $13.1 billion and was $2 billion per month by the end of the year – double the run rate from the beginning of the year.
But expenses spiked to $34 billion, resulting in a $20.9 billion loss from operations in 2025. (The "net loss attributable to the company" was $38.5 billion, but this included large non-cash charges related to its conversion from a nonprofit to a for-profit company.)
These numbers will be revealed more broadly when the Form S-1 OpenAI has filed in preparation for its IPO later this year is made public. When investors digest these horrific numbers, I think they're going to reject the $1 trillion-plus valuation OpenAI is hoping for – even in this environment of extreme valuations for anything AI related.
But bankers and insiders will likely still get the IPO done, foisting this turd on naïve retail investors and index funds. That said, I think it'll be delayed into 2027 and at a lower valuation than the latest $852 billion figure.
In my opinion, OpenAI's intrinsic value – defined as the present value of its future free cash flows ("FCF") – is zero. I don't think it'll ever generate even $1 of FCF.
Ed Elson of the Prof G podcast interviewed Zitron this morning about his findings. You can watch it here on YouTube.
In the second half of the podcast, Elson interviews Morningstar's Nicolas Owens about SpaceX's (SPCX) absurd valuation, which is also worth listening to. That brings me to my next topic today...
2) In a Substack post yesterday (for paid subscribers), Michael Burry of The Big Short fame gave some perspective on the foolishness of SpaceX's valuation:
At a $2.8 TRILLION market cap, SpaceX, which is fundamentally a small space company, a niche telecom, a bedeviled social media company, and a CoreWeave-light, has less than $20 billion in total revenue.
With that $2.8 trillion, SpaceX's market cap could buy Page, Brin, Bezos, Zuckerberg, Ellison, Arnault, Huang, Buffett, and Ortega and still have $1 trillion left over. Those are the... richest people in the world, after Elon.
SpaceX's market cap is now, or a few moments from now, larger than each of Russia, Italy, and Canada.
Berkshire Hathaway has been eclipsed 2 1/2 times over in just three days...
SpaceX's net worth could buy every single U.S. aerospace and defense company and have money left to buy every gold miner and airline in the world.
Elon Musk himself is now worth more than Berkshire Hathaway.
When SpaceX went public at $135 per share last week, I thought it was roughly 10 times overvalued – not 10%, but 10 times. But I wouldn't have shorted the stock then – or even now, with it up to around $200. (And in any case, I don't recommend most investors short stocks.)
That's because in the short run, stocks like this can trade anywhere. It's a good reminder of this old saying: "The market can stay irrational longer than you can stay solvent."
I've heard people justify buying into SpaceX's IPO by pointing to how well investors did buying into the Amazon (AMZN) and Tesla (TSLA) IPOs. But this is a silly analogy because their market caps after the first day of trading were $560 million and $2.27 billion, respectively.
SpaceX's market cap today is approximately 5,000 and 1,200 times more, respectively. At $2.7 trillion, SpaceX is trading at 140 times trailing revenue.
This reminds me of Cisco Systems (CSCO) when it briefly had a $570 billion market cap and traded at 232 times trailing earnings at the peak of the Internet bubble in March 2000...
Its earnings and revenue continued to grow rapidly in subsequent years. But because of its extreme valuation, the stock fell by 88% and didn't recover for 25 years, as you can see in this chart:
SpaceX also reminds me of Avis Budget (CAR) earlier this year, when it spiked from around $100 per share to nearly $850 in less than a month – thanks to an epic short squeeze, which I covered on April 17, April 24, and May 7.
In the former, I concluded:
I would guess that we're very close to the top and that Avis' stock will soon be back to around $100 per share.
Sure enough, Avis' stock closed yesterday at $185.49 – on its way back to $100, I confidently predict.
Unlike Avis, I don't think a short squeeze is what's driving SpaceX to such absurd levels. Rather, it's due to three factors...
First, there's a very limited float – only about 5% of SpaceX's shares are trading.
Second, I suspect there's a feedback loop in which investors (in this case, I'd say speculators) are buying SpaceX's call options. The market makers who sell the options (big banks, mostly) then buy the stock to protect themselves – this is called "delta hedging."
This buying pushes up the stock, requiring the market makers to buy more stock. That's because as the stock price moves up through the option's strike price, it's more likely the option will be exercised. This cycle can push a stock up and up... which I think is happening with SpaceX.
Lastly, one of the primary beliefs underpinning SpaceX's valuation is that you can blindly invest with CEO Elon Musk and he'll make you a lot of money. Exhibit A, of course, is Tesla.
For more than 14 years, this belief may have been true. But not today...
3) Tesla's stock rose more than 250 times from its split-adjusted IPO closing price of $1.59 to a peak of $409.97 on November 4, 2021. But Tesla's extreme valuation and deteriorating fundamentals have weighed on the stock since then...
Revenue has stagnated since the fourth quarter of 2021, while profitability has steadily declined. And operating income has crashed by 64%, from its peak of $13.7 billion in 2022 to $4.9 billion over the past four quarters:
Meanwhile, FCF is roughly flat:
As a result, since November 4, 2021, Tesla's stock is down 1.3%. That not only badly lags the S&P 500 Index, which is up 60.5% over the same time frame, but also every other stock in the Magnificent Seven:
- Microsoft (MSFT), up 17.1%
- Amazon (AMZN), up 41.5%
- Meta Platforms (META), up 78.7%
- Apple (AAPL), up 98.2%
- Alphabet (GOOGL), up 151.7%
- Nvidia (NVDA), up 596%
You can see the comparative performance in this chart:
And this chart removes Nvidia so you can better see the other stocks:
Frankly, I'm shocked that Tesla's stock has held up so well. If it were any other stock, with rational investors instead of Musk worshippers, it would be down by at least 50%.
But instead, the decline in earnings has been offset by a rise in Tesla's price-to-earnings multiple. At yesterday's closing price of $404.66, it's trading at 196 times this year's consensus analysts' estimate of $2.06 per share. Go figure...
Best regards,
Whitney
P.S. Not only is SpaceX's valuation absurd... but its IPO has also put millions of Americans' retirement savings in danger – even if you haven't bought a single share.
That's because of a new financial rule surrounding the nature of IPOs. When it's put into place on July 6, it will have dramatic implications for anyone holding index funds, exchanged-traded funds of all kinds, and more.
Yesterday, I went on camera to share all the details – and one money move you need to make to protect your wealth. If you missed it, don't worry. You can watch a replay right here.
P.P.S. I welcome your feedback – send me an e-mail by clicking here.