The technology sector has experienced a period of significant volatility, with shares across the industry seeing a notable decline over the past week. This downturn was particularly pronounced for SpaceX, the space exploration company, which saw its share price fall by 26.2% in the week leading up to 23 June. This brought its value below its initial public offering (IPO) closing price, less than two weeks after its market debut.
The broader market also reflected this cautious sentiment, with the US-focused Nasdaq 100 index, heavily weighted towards technology stocks, decreasing by 2.1% over the same period. The S&P 500 index, which includes a wider range of companies, also fell by 1.9%. While SpaceX is not yet a component of these major indices, its immediate post-IPO slump is indicative of a general shift towards pessimism regarding technology valuations among investors.
Several factors appear to be contributing to this cautious atmosphere surrounding tech stocks. Geopolitical instability, particularly the fragility of the peace agreement between the US and Iran, is weighing on market confidence. Furthermore, the prospect of central banks, including the Bank of England, hiking interest rates in response to persistent inflation is creating unease. Although both the US Federal Reserve and the Bank of England held rates steady last week, their counterparts in the EU and Japan both raised rates by a quarter of a percentage point, signalling a potential future trend.
Specific concerns around SpaceX’s performance were amplified by its announcement on 22 June that it was seeking to raise an initial $20 billion in debt, a figure that increased to $25 billion the following day. This news led to a 16.4% drop in SpaceX shares on 22 June. Susannah Streeter, chief investment strategist at Wealth Club, commented that issuing such substantial debt at a high valuation raises questions about the cash flow of this capital-intensive venture, suggesting the company has 'come down to earth with a bump'.
Underpinning much of the negativity specifically within the technology sector is a growing scepticism about the potential returns from the artificial intelligence (AI) boom. Investment director at Fidelity International, Tom Stevenson, noted doubts about the profitability of hundreds of billions of dollars poured into AI, combined with the increasing appeal of rising bond yields and a shift towards more equity issuance over share buybacks, contribute to a feeling that the AI boom could be fragile.
Despite the recent declines, SpaceX shares closed on 23 June 15.6% above their IPO price of $135 and 4.1% above their opening trading price of $150 on 12 June. This indicates that while the initial post-IPO euphoria has dissipated, the company still retains some of its initial market premium.