SpaceX vs. AOL: We've Seen This Movie Before, and We Know How It Ends
Twenty-five years ago, the financial press anointed a generation of companies with no earnings, no credible path to earnings, and no apparent shame about either. The Nasdaq traded at a price-to-earnings ratio north of 200. Analysts explained, with straight faces, that traditional valuation metrics no longer applied. We were in a "new economy," you see. The rules had changed.
Except, they hadn't.
The excesses of 1999–2000 are supposed to be a cautionary tale. Instead, they've become a playbook. And the SpaceX IPO is the clearest sign yet that we have learned precisely nothing. It priced at $135 per share on June 12th, 2026, surged 19% on its first day to close at $160.95, and briefly touched a market capitalization above $2.25 trillion intraday.
Let me walk you through the parallels, because the details matter.
AOL Then, SpaceX Now
On January 10, 2000, AOL announced it would acquire Time Warner in an all-stock deal valued at $165 billion. At the time, AOL had revenues of roughly $4.8 billion. Time Warner (a company with real assets, real studios, real cable systems, real earnings) had revenues of $26.8 billion. Yet AOL's inflated stock gave it the purchasing power to swallow a company nearly six times its size. The combined entity carried a P/E ratio of 217. Analysts called it a visionary merger, but business schools now call it the worst deal in corporate history.
The mechanism was simple and should sound familiar: a company with an extraordinary stock price uses that currency to acquire legitimacy, scale, or assets it could never justify purchasing with real money. The stock is the product, and the narrative is the collateral.
SpaceX replicated this structure with almost eerie precision when it absorbed Elon Musk's xAI in an all-stock deal in February 2026. The object of worship has changed: it's no longer dial-up internet subscribers, it’s artificial intelligence and Mars colonization. However, the dismissiveness toward skeptics has not changed. In 2000, anyone who questioned AOL's valuation was told they didn't understand the internet. In 2026, anyone who questioned SpaceX's valuation was told they didn't understand Elon Musk.
SpaceX raised $75 billion in the largest IPO ever, instantly making Musk the world's first trillionaire on paper. The crowd loved it. They always love it, right up until the moment they don't.
The Numbers Don't Lie, The Narrative Does
SpaceX generated $18.7 billion in revenue in 2025. That sounds impressive until you note what investors actually paid for it. At the IPO price of $135 per share, SpaceX was valued at roughly 94 times revenue. At the first-day close of $160.95, that multiple pushed above 110 times. No major company in the history of public markets has debuted at a revenue multiple anywhere near this. Not Microsoft, not Google, and not Amazon, even at its most euphoric.
Remember though, that is revenue, not earnings. There are no meaningful earnings to speak of.
SpaceX posted a net loss of $4.28 billion in Q1 2026 alone. The culprit is the xAI acquisition, which brought with it $2.5 billion in AI-related losses per quarter. The AI segment recorded a $6.35 billion operating loss in all of 2025. Starlink, the one genuinely profitable business in the portfolio, is being used as a piggy bank to subsidize Musk's AI ambitions. The company that was sold to the public as a rocket and satellite business at its IPO, is primarily a vehicle for funding one of the most capital-intensive technology experiments in history.
This is exactly what happened at AOL Time Warner. AOL's dial-up cash flows were consumed almost immediately by the costs of a deal predicated on a future that never arrived. By 2002, the combined company reported a $99 billion annual loss, the largest in U.S. corporate history at the time. The "synergies" that justified the deal's logic never materialized. The stock lost over 90% of its peak value and it never recovered on a total return basis.
The CapEx Trap: Dark Fiber Then, Dark Data Centers Now
Here is where I want to linger, because this is the part of the story that the first-day euphoria always obscures. Capital expenditure (CapEx) booms have a seductive logic in their early stages and a brutal one later on, and history is clear about how they resolve.
In the late 1990s, WorldCom's CEO claimed that internet traffic was doubling every 100 days, a wild exaggeration that nevertheless sent the entire telecom industry into a frenzy of infrastructure spending. Companies like Global Crossing, Level 3, and Qwest raced to lay fiber optic cable across continents and under oceans to capture demand that, it turned out, wasn't coming anytime soon.
Global Crossing alone went from IPO to a $47 billion valuation in eighteen months. By late 2001, it was losing $3.4 billion in a single quarter on $793 million of revenue. It filed for bankruptcy in early 2002. By the mid-2000s, roughly 85% of the fiber optic cable laid during that era sat unused, what the industry grimly called "dark fiber." The infrastructure was real, but the demand projections were fantasy.
Now look at today.
The four largest hyperscalers (Amazon, Microsoft, Meta, and Alphabet) collectively spent more than $300 billion on AI capital expenditures in 2025. In 2026, that figure is on track to exceed $650 billion. Goldman Sachs projects a combined $5.3 trillion in CapEx from these four companies alone between 2025 and 2030. Meta's free cash flow, which stood at $43.6 billion in 2025, is set to collapse to around $8.5 billion in 2026, with analysts projecting it turns negative for part of the year. That is not because the business is shrinking, but because capital expenditure is consuming it. Meta raised its 2026 CapEx guidance to between $125 and $145 billion, roughly doubling its 2025 spend of $72 billion. Microsoft guided $190 billion, and Amazon guided $200 billion.
The market, to its credit, has begun to notice. When these companies reported Q1 2026 earnings (results that largely beat revenue forecasts), their stocks fell in after-hours trading because investors are increasingly focused not on revenue but on when and whether this spending produces returns. That is the right question. It is also, historically, the question that gets asked too late.
The CapEx trap works like this: in the early stages of a boom, spending is celebrated because it signals confidence and ambition. Stocks go up. Then the spending accelerates because competitive pressure makes it mandatory. You cannot be seen falling behind. Stocks go up more. Then the depreciation from all that prior spending starts flowing through the income statement, compressing earnings just as revenue growth inevitably decelerates. Stocks stop going up. Then someone realizes that utilization rates are far lower than projected, that pricing has been competed away, that the "demand" that justified the spending was partly circular: companies buying AI services from each other, inflating each other's revenue figures, in the same way that telecom companies ran "capacity swaps" in 2000 and 2001 to manufacture the appearance of growth.
By the time the music stopped in 2002, only a fraction of installed fiber was actually lit. I am not predicting the same outcome here. AI is a more genuine technology than the promise of bandwidth alone. But the relevant question is not whether AI matters. It's whether $650 billion a year in capital spending, piled onto balance sheets that are already consuming nearly all of their operating cash flows to fund it, can be justified by the revenues that actually materialize. History's verdict on that kind of question is not encouraging.
And SpaceX sits at the center of this dynamic. Its announced ambition of building space-based AI data centers is a direct pitch to investors that it will capture some portion of this CapEx tsunami. The capital requirements for what comes next (Starship commercialization, orbital data infrastructure, the Martian fantasy) are staggering and largely unquantifiable. Over $2 trillion was paid for a company with no earnings, built on a foundation of another company's losses, to fund infrastructure for a demand curve that exists primarily in PowerPoint slides.
The Distribution Strategy
One more detail deserves attention, because it tells you something about who the sophisticated money thought would be holding the bag.
Goldman Sachs led the SpaceX deal with twenty-one banks lined up. Retail investors received 30% of the float, three times the standard allocation for a mega-cap offering. That is not generosity. It is distribution strategy.
When institutional investors need to ensure an orderly exit from an overvalued position at some future date, they need a large and eager retail base to absorb the supply. Robinhood, Fidelity, Schwab, and E-Trade were named in the prospectus as distribution channels.
The stock surged 30% intraday before settling to a 19% first-day gain. The perpetual futures market had already priced it there. In other words, the "pop" was largely pre-engineered, the enthusiasm fully anticipated, the retail buying pre-arranged.
This is not how undervalued assets behave, it is how overvalued ones are distributed.
What Comes Next
I am not predicting the timing of the SpaceX reckoning. I never do. Timing is the enemy of the short seller, as many have learned at considerable cost over the years. Bubbles can persist far longer than logic suggests, and the person who is right too early is, in markets, functionally indistinguishable from the person who is simply wrong.
What I am saying is this: a company losing $4 billion per quarter, trading above 110 times revenue on its first day of public life, in an industry requiring essentially unlimited capital expenditure, controlled by a single individual holding 85% of the voting rights, sitting inside a broader market where the four largest technology companies are spending their way toward $1 trillion per year in CapEx with increasingly uncertain returns, is not an investment. It is a story.
Stories can be very expensive to believe in.
AOL Time Warner lost over $200 billion in market capitalization from peak to trough. By 2003, the darkest irony had revealed itself: the company that swallowed an empire using its own inflated stock as currency had destroyed more wealth than almost any enterprise in American corporate history. The Nasdaq fell roughly 83% from its March 2000 peak before finding a floor in October 2002. Barely two months after the AOL-Time Warner announcement, the whole edifice began to crack.
On June 12th, 2026, a rocket company with no earnings and a $2 trillion valuation rang the opening bell on the Nasdaq. The crowd cheered. They always cheer.
History doesn't repeat. But it rhymes with remarkable fidelity.
Turning this into action
If it wasn’t clear, I don’t think SpaceX is a good use of capital and here are three asset classes I think can generate a strong return irrespective of whether SpaceX blows up next week, next year or never.
U.S. Small-Cap Value
For years, value investing has been termed dead by market prognosticators. What they fail to realize is:
Value investing has only not worked in the U.S.
Strategies can go out of favor far longer than ever seen in the short history of markets we have.
Despite being “dead,” small-cap value stocks have still delivered double digit returns in the 90s,10s, and 20s, and were >+9% during the negative decade for the Nasdaq and the lost decade for the S&P 500.
U.S. small-cap value stocks can be bought at a price to revenue of under a dollar. You can pay 82 cents per dollar of revenue for these small value stocks. You can buy these stocks at a price to earnings of 11.4. At its peak, SpaceX was trading at a Price to Revenue multiple of 10x that of the price to actual earnings of small value stocks.
In life, you broadly get what you pay for. A dry aged ribeye steak that costs $70 a pound is leaps and bounds more delicious than Chuck roast at $7 a pound. But when it comes to investing it is inverted. The lower the price you pay, the better your future expected return.
International Small-Cap Value
Value investing has worked perfectly across the globe as international small-cap value stocks (DISVX) have compounded at nearly 2% greater than the broad international index since inception (1995).
Despite the success of international value over the index, the returns have still lagged U.S. stocks, and thus we find ourselves in another position to buy quality companies at dirt level prices. International small-cap value stocks trade at a price to revenue and price to sales of even less than that of U.S. small-cap value stocks. When you buy companies at a price to earnings of 11 (which they trade at), these companies need 0% earnings growth to give you a 9% return.
Even if SpaceX goes bankrupt as did AOL, International small-cap value stocks can still generate double digit returns. From 1/1/2000 to 12/31/2009, the Nasdaq compounded at -6.42% and $100k turned into $51k. International small-cap value stocks compounded at 11.27% as $100k nearly 3x into $290k.
Trend Following
You can do trend following in many ways. It can be long only for equities or even individual names. The most robust form of trend following comes from going long and short all the futures markets globally.
By following trends (long and short), this strategy creates a unique return stream that has 0 correlation to any other asset class, extremely positive returns during market turmoil and a positive expected return.
It is as Meb Faber often says, “the premier diversifier” to any traditional portfolio. When looked at objectively in any software, trend following should be from 30-50% of any optimized portfolio.
I want to take action but the taxes are going to kill me
This is where a section 351 exchange comes into play. Think of it as a 1031 real estate exchange but for stocks. You can take your large U.S. tech stocks and diversify them into an international ETF without paying taxes.
For a full breakdown on 351 exchanges, read this other blog I wrote: https://www.summitwealthandretirement.com/swrp/351-exchanges
If you want to diversify your portfolio away from SpaceX or these other seemingly overpriced names, send me an email (nick@swrpteam.com) or book a time on my calendar (https://calendly.com/nick-swrpteam).
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.