Google Is Pumping The AI Bubble HARD
The circle is growing larger.
By now, we all know that AI is just one giant circle jerk of a bubble. Big Tech companies like Nvidia, Microsoft, Google, OpenAI and Oracle have been passing the same few billion dollars amongst themselves for a while, creating a broken financial perpetual motion machine that does nothing but artificially boost their value. However, there was one glaring outlier to this arrangement: Elon Musk’s xAI, which kind of had its own thing going on. But thanks to Musk merging xAI with SpaceX and taking it public, xAI/SpaceX is now the centrepiece of this circular bubble, and no one is trying to capitalise on it more than Google. In fact, there is an argument that Google is trying to pump Musk so hard that it could cause the entire bubble to collapse. Let me explain.
Did you know Google is a shareholder in SpaceX? Back in 2015, they invested $900 million into the company and still hold a 6.11% stake (pre-IPO). If SpaceX reaches its utterly ludicrous IPO valuation of $1.75 trillion, then this stake would be worth $122 billion. In other words, if this IPO goes well, Google stands to make well over $100 billion in profit from a less-than $1 billion investment. For some context, Google made just under $110 billion in profit last year. So this one investment could literally double their profits this year, if all goes well.
But there is a problem — SpaceX is not exactly IPO-friendly.
Financially, the company is in a sticky situation, having lost $4.9 billion last year and losses are set to rise dramatically this year. The xAI side of the business is dead, with crushingly low infrastructure utilisation, functionally no market share, severe legal troubles, and horrifically large losses. The only profitable arm of the company was Starlink, which wasn’t actually all that profitable, and while it is growing, it shows signs it can’t sustain that growth in the long-term (read more here). All these problems should dramatically undermine SpaceX’s speculative value.
But SpaceX is asking to be valued at a level no company has ever seen. They made $18.7 billion in revenue last year, and are targeting a $1.75 trillion valuation, which equates to a revenue multiplier (how to value a business based on its annual revenue) of well over 90. For some context, a revenue multiplier of ten is considered extremely high. This has led some analysts to suggest that SpaceX is worth half its target IPO valuation, or just $780 billion. I, along with many others, believe even this figure is too high. Considering the immense amount of baggage SpaceX is carrying, a low-end revenue multiplier would be closer to six, and a high-end, extremely optimistic one would be 12. That would yield a more realistic valuation of $112 billion to $224 billion, or less than 13% of SpaceX’s targeted IPO value.
So, for Google to make their bank, they have to polish this turd, improve the perception of its internal workings, and push the hype to draw in as many suckers as possible.
Now, here is an interesting fact: Google also holds a rather large stake in xAI competitor Anthropic. Google owned 14% from a $3 billion investment but has since invested an additional $10 billion, specifically for compute power, which has likely raised its stake to the upper teens. Why does that matter?
