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THE SPACEX SHAM  
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Advait Arun
August 11, 2026
Dissent Magazine
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_ The chief scandal of the AI boom is not the secretive financial
machinations of tech oligarchs, but how much money they have raised on
the open promise of an automated, transhumanist future. _

Elon Musk at the 2016 Tesla Annual Shareholders' Meeting, by
jurvetson (CC BY 2.0)

 

On June 12, SpaceX went public at a valuation
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of $1.75 trillion, the largest IPO in history, minting Elon Musk into
the world’s first trillionaire, at least for a few weeks. The
company occupies a legitimate market niche as a private spaceflight
vendor for NASA and as a global satellite-based internet services
provider through Starlink. But its future value hinges on the
ostensibly stratospheric growth potential of Musk’s other venture,
xAI, which combines X (formerly Twitter) and Grok (the preternaturally
bigoted, deepfake-producing large language model).

Musk merged SpaceX and xAI earlier this year before he took SpaceX
public―not just to build
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data centers in space and to set up a colony
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on Mars with a million inhabitants, but to employ
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SpaceX’s fundraising potential to funnel capital into xAI’s
increasingly expensive ambitions. Unlike just a year ago, SpaceX is
now an AI company. Nearly 80 percent of its predicted $28 trillion
total available market is tied
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hypothetical market for AI enterprise services.

Even without xAI tacked on, the company would be unprofitable. And
yet, despite the various risk disclosures peppering Musk’s
prospectus
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dry statements explaining that several “anticipated market
opportunities” such as space tourism and human augmentation “do
not currently exist”―the investment community at large bent over
backward to get a piece of SpaceX stock. People wanted in, and badly.
The IPO was a mass delusion event of astronomical proportions.

Although SpaceX stock has since fallen far below its IPO price, market
behavior in recent weeks proves that the disclosures and the alarm
bells were immaterial when there was money to be made on the way up.
This latest naked demonstration of irrationality represents a sharp
rebuke to the many progressives and consumer advocates who have long
argued that corporate transparency and risk disclosure will bring
market irrationality to heel, protect Americans from white-collar
corruption, and democratize an inegalitarian financial system. The way
markets contorted around the SpaceX IPO should put paid to these
notions. Rather than be disciplined by the public markets, Musk bent
them to his will. And we’re all caught up in it.

Even the most transparent markets will not govern themselves.
Democratizing finance means taking aim at Big Tech’s oligarchic
control over the economy, not giving them a level playing field.

 

 

The volumes of capital involved in the AI boom that is currently
buoying xAI are truly immense. But, volume aside, this sector has the
same financial building blocks
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other―including the ones that might give people pause, like
off-balance-sheet special purpose vehicles designed to offload risk
and private credit lenders who don’t often disclose asset
performance. Arrangements like these are used throughout the financial
system to speed along the development of all sorts of projects. But
the fundamental opacity of these financial structures―how they shift
risks without disclosing them―offends our sense of moral economy. 

In most of my conversations with congressional staffers, community
advocates, antitrust lawyers, and journalists (much of which followed
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at the Center for Public Enterprise), people were as worried about the
AI boom’s lack of financial transparency as they were about the
sector’s structural unprofitability and the way that hyperscaler
tech giants are reshaping our economy. AI makes no money, _and_ its
risks are being squirreled away into the financial system? Do the
broligarchs have something to hide? Americans smell a rat.

Nowhere is this anxiety about hidden risks and investments that are
too good to be true more prevalent than in the debates about private
credit
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catch-all term for the gaggle of non-bank lending institutions that
originate and trade billions of dollars of loans without supervision
by the Federal Reserve. (Many Americans previously encountered private
credit as “shadow banks” in the hangover of the Great Recession.)
Private credit lenders, such as Blackstone, Apollo, KKR, and Blue Owl,
are large and important investors: They take capital from
institutional investors like pension funds, insurance companies, and
asset managers and provide it to borrowers across the economy. Where
the AI boom is concerned, it’s sometimes hard to tell
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just how much they’ve lent to the tech giants and on what terms. But
we do know that when Musk’s xAI was still separate from SpaceX, it
arranged [[link removed]]
for an off-balance-sheet subsidiary to borrow billions from private
credit fund manager Apollo to purchase
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graphics processing units (GPUs) for data centers.

Last fall and early this year, jitters
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in the AI market and the failure
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of a few high-profile private lending transactions drew significant
media attention
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to the performance of private credit firms, many of which have taken
long and confident positions in the future of AI. Many journalists
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analysts
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included
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about the potential exposure that pension funds and retirement
accounts had to a market crunch in the AI sector, thanks to their
private credit liabilities. Progressive-minded policy analysts
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consumer protection watchdogs
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Senator Elizabeth Warren
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all converged on a call for greater transparency and disclosure in the
private credit market, tied to a broader vision for the
democratization of finance defined by market supervision and
information access.  

The logic of this recommendation is that open and transparent risk
disclosure will prompt investors to change their behavior―either
through facilitating consumer advocates’ ability to pressure
corporations into more pro-social behavior, or through impelling
investors to reallocate away from investments they didn’t realize
were so risky, or both. ESG metrics should, by this logic, prompt
investors to reallocate capital away from harmful companies; climate
risk analysis will prompt bond rating downgrades; and private credit
supervision will unveil all the market’s risky and inflated gambles
on AI. In an open market, the truth will out. Or so the story goes.

 

 

Unfortunately for market transparency advocates, the truth _is_
out―and nobody cares. The record demand for SpaceX’s June 12 IPO
immediately made it one of the world’s most valuable companies. Its
pre-IPO valuation put its price-to-earnings ratio (a proxy for
investors’ expectations for the company’s revenue growth) over
four times higher
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than that of NVIDIA, the leading GPU manufacturer whose revenue has
skyrocketed during the AI boom. Upon SpaceX’s big debut, its
valuation immediately hurtled
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past $2 trillion
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Never mind that SpaceX is unprofitable or that AI is a cash sink. The
first month after the IPO, on the equity side of things, there was
little in the way of buyers’ remorse. 

Negative coverage of the IPO was limited
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to the participation of so many major banks in the IPO process; they
don’t want to poison the cash cow they’re milking for underwriting
fees. Many of those banks also lent to SpaceX when it was a private
company and helped to fund
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merger with xAI in preparation for the IPO. These arrangements are not
unheard of in the world of investment banking, but, with such large
volumes of cash on the line, it’s hard not to argue that lenders
shared an interest in leveraging a successful IPO to quickly lift
their concentrated exposure to SpaceX off their balance sheets.

Public disclosures did little to temper investors’ enthusiasm for
the company. To the contrary, the sheer mass of this IPO, like the
gravitational pull of a giant star, has reshaped markets around it in
unprecedented ways―most noticeably through changes to index funds’
inclusion rules.

Index providers like the Nasdaq, which track the overall market and
various groups of companies for the purpose of providing
“thematic” and whole-of-market investment opportunities to
interested investors, will re-weight their indices to include public
companies that meet their inclusion rules. Passive index funds will
buy shares in those companies in line with the index providers’
weights and at market prices―thus providing public companies with
predictable demand for their stock issuance that early holders,
including many retail and institutional investors, can sell to
liquidate their position. In return, the index funds provide market
participants with the returns of the overall index, rather than of any
individual company.

For all that SpaceX is worth, the IPO only made about 5 percent of the
company’s stock available to be traded among shareholders. There
remains more privately held stock to be sold into the market as
various employees and early private investors reach the end of their
“lock-up” periods in the coming weeks and months. (The first of
those lock-ups ended on August 6, more than doubling
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the number of publicly tradable shares and putting the company at
about a 12 percent open float.)

SpaceX’s limited public float, combined with its unprofitability and
the sheer recency of its IPO, would usually have it failing
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meet most criteria for index inclusion. But it was still worth so much
and carried so much investor demand that the Nasdaq was prompted to
modify
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their index inclusion rules to ensure SpaceX’s speedy addition.
SpaceX no longer needs to wait a year, nor does it need to float much
of its shares on public markets, to take its place
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the portfolios of some of the biggest index funds. Investors in
passive funds that track these indexes now have their portfolios
weighted toward SpaceX’s outsize position within them. Moreover,
SpaceX’s quick inclusion makes IPO investors less price-sensitive,
since they know index funds capitalized by passive investors will be
buying shares in bulk in the near-term. 

The S&P initially proposed, in line with its peers, to modify its
rules to quickly include SpaceX in the S&P 500―the most prestigious
index, preferred by the biggest passive index funds―but ultimately
declined to modify its criteria to do so. That means BlackRock’s IVV
and Vanguard’s VOO, two popular passive index-tracking funds, will
for now remain free from SpaceX exposure. But there are many
shareholders in other index funds who, despite a potential preference
for avoiding a company with such uncertain and overvalued prospects,
are now forced to prop it up.

Do the index inclusion rule changes really give passive investors the
most “accurate” picture of the stock market? Or are they a
rug-pull designed to quickly provide price-insensitive exit liquidity
to the early investors of massive companies like SpaceX—and thereby
to pass on their risks to others? SpaceX’s sheer size is a point in
favor of both perspectives. But one thing that nobody can dispute is
that, even though S&P’s late-game retreat shields a good chunk of
passive investors from SpaceX (for now), the rest of the
“Magnificent Seven” tech giants still represent over 30 percent of
the total valuation of the S&P 500. These companies make up such a
large share of the stock market and its various tracking indices that
any attempt to diversify one’s investment allocations away from them
and to avoid over-exposure to tech means to sacrifice
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Musk, meanwhile, basking in the world’s interest in his companies,
has diverged from IPO precedent by issuing shares of stock that are
designed
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give shareholders virtually no control over the company. Most stocks
issued on public markets come with a common set of corporate
governance rights. Larger shareholders, such as institutional
investors and index funds, therefore have meaningful sway over the
transparency and operation of the companies they’re invested in. But
Musk has stripped control from his shareholders and hollowed out the
nature of their ownership. The share structure is designed such that
he retains total control of the company and can appoint
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of the board of directors, regardless of other shareholders’ wishes.
SpaceX’s share structure also does not allow public shareholders to
bring most kinds of shareholder lawsuits against him, or to amass the
voting power to do so in the first place. 

It turns out the corporate governance rules that most investors take
for granted were never set in stone. In fact, the existence of public
SpaceX stock belies Musk’s total control. Three of the country’s
largest public pension funds called
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SpaceX’s governance structure “the most management-favorable
governance structure ever brought to the U.S. public markets at this
scale.” But it seems like they will invest in spite of their own
concerns; their fiduciary duty to pensioners will trump their concerns
over SpaceX’s corporate governance.

As a percentage of any of our individual allocations, or of a pension
fund’s allocation, SpaceX still will not claim
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too large a share. But the principle matters: The upshot is that the
country’s retail investors, its small-cap retirement savers and
pensioners, are all but forced into supporting Musk’s company and,
by extension, his dreams.

 

 

The potential IPOs for Anthropic and OpenAI, which are expected within
the coming year but have not yet been scheduled, are both reportedly
targeting
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IPO valuations above $1 trillion. Like SpaceX, those valuations will
immediately put their shares into passive funds tracking the Nasdaq.
It is also quite possible that their founders will engineer the same
kind of share control that Musk did. So long as the AI investment boom
hasn’t crashed by then―you never know!―the results of these
enormous IPOs will likely be similar: a mad dash to participate and
the perpetuation of the AI investment boom as a consequence of all the
liquidity that floods into the sector. In short, the turn to public
markets may end up propping up the hype around this quite fragile
sector rather than discipling it. Transparency doesn’t temper animal
spirits; animals dash into glass doors all the time.

Of course, financial markets still exercise some gravity to pull
orbital valuations back to earth. Fermi, a nuclear power and data
center developer led by former Texas governor Rick Perry―who
promised to name the company’s nuclear reactors after Trump―went
public to much fanfare last year, but it has been falling apart
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since. Once valued at $15 billion, the company is now worth maybe just
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its CEO was fired to boot. Venture Global, a natural gas exporter,
went public last year and similarly flopped
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SpaceX may yet suffer the same fate, as lock-up periods expire, early
investors finish selling their positions, and more market analysts
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short sellers start questioning
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the assumptions behind the IPO. SpaceX bonds are already trading
poorly
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of August 6, SpaceX stock is down around 20 percent below its IPO
price and more than 50 percent
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from its peak valuation in the days after the IPO. Still, Musk will no
doubt find ways to prop up his assets’ value, if not by riding
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fusing himself with the state through increasingly ambitious
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public-private partnerships. Perhaps he will even arrange for SpaceX
to buy Tesla. The events of the past few months suggest that markets
will love it before it happens. They will only disapprove after the
fact.

Regardless of how its shares fare, the fragility underlying the AI
boom means that SpaceX and its peers might collapse anyway. But even
if what goes up someday comes down, the ascent of SpaceX and its
fellow tech giants is creating incredible amounts of paper wealth in
the form of appreciating stock portfolios and creditworthy debt―both
of which investors can recycle into more tech startups, data center
projects, and venture capitalists’ visions of an AI-powered future.
Their investments, collateralized by their wealth and juiced by retail
and institutional investors (consensually or otherwise), are already
transforming our economy, and it’s hard to argue that such
transformations are in our interest. 

 

 

Haggling over how markets should or shouldn’t behave is almost
beside the point when tech oligarchs can use them in both their
private and public forms to advance their dystopian visions of the
world. The democratization of finance must be achieved by other means
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giving the mass of investors the best possible access to
information―because it’s clear that the promise of cashing in on a
mania jingles louder than a sheaf of S-1 disclosures.

The chief financial scandal of the AI boom is therefore not that the
tech companies are cooking their books. While uncertain assumptions
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about line items like depreciation
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tech giants’ disclosures, there is no convincing evidence of
accounting fraud. The real scandal is how much capital the tech
oligarchs have been able to raise on the promise of an automated, even
transhumanist, future.

Progressives would do better to advocate single-mindedly for the kind
of economy we really want―an egalitarian one, free from oligarchic
control over the shape of our shared future―than to couch our
distaste for the state of things in accusations of skullduggery. In
other words, we must fight these nightmare visions of the future
directly and champion the kind of anti-oligarchy and anti-corruption
politics that could meaningfully roll back elite control of our
economy. That means stronger progressive income taxation, more
punitive capital gains taxation, social media regulation, support for
public news media, and immediate campaign finance reform.

These reforms are distinct from proposals to tax AI and data centers,
which would merely help redistribute and socialize the gains of an
industry that continues to grow. Taxing AI would do little to cut down
on the influence of Silicon Valley; in fact, it would all but
legitimize its dominance. Anti-oligarchy initiatives, on the other
hand, have a distinctly more productive effect: They help disempower
Silicon Valley elites (and whatever class of dystopian entrepreneurs
comes after them) from irrevocably twisting the direction of markets,
the investment landscape, and the future of the economy in their
interest. The public can instead reinvest its collective wealth into
the kind of egalitarian economy we deserve—one that, at a minimum,
protects the dignity of education and labor, which tech oligarchs seem
so keen on detonating.

_ADVAIT ARUN is an infrastructure finance and climate policy analyst
at the Center for Public Enterprise. He writes about climate, finance,
data centers, and politics, and edits the Caravanserai magazine for
policy and culture. The views expressed here represent the author’s
personal opinions alone and not those of their employer._

_Dissent is a magazine of politics and ideas published in print three
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quickly established itself as one of America’s leading intellectual
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* SpaceX
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* artificial intelligence
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* Elon Musk
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