The Elon Bump: How Wall Street’s Faith in Musk Fuels a Bubble

The SpaceX IPO has been a wild ride, with Thursday’s unlock of nearly a billion shares promising to bring even more drama to the market. Beneath this story lies a more insidious trend: Wall Street’s collective infatuation with Elon Musk.

Musk’s success extends far beyond Tesla, where he is often credited with redefining the electric car industry. He has tapped into an essential aspect of human psychology – our tendency to follow charismatic leaders and bet on their vision. This phenomenon, dubbed “The Elon Bump” by some analysts, has been seen in other high-profile tech companies as well.

Investors become enamored with founders like Musk, ignoring or deliberately overlooking fundamental risks and uncertainties surrounding the business. The consequences can be devastating when reality sets in. D.A. Davidson’s Gil Luria notes that every company goes through a similar process after the lockup period expires, but what’s unusual here is how quickly four major index providers – CRSP, FTSE Russell, MSCI, and Nasdaq – added SpaceX to their lists within 25 days of listing.

This accelerated path into the indexes has created a dynamic where passive funds inside millions of 401(k)s are now holding onto SpaceX stock. JPMorgan estimates that inclusion alone transferred $4 billion of SpaceX into these accounts. Luria calls it “a little bit of a bailout,” implying that without this influx of demand, selling pressure at lockup expiration would have been much higher.

The interesting thing here is not just the numbers but how they reflect a broader trend in the market. Similar scenarios have played out with other companies where index inclusion has artificially propped up prices before reality sets in. The $3.6 billion windfall for two trading teams at Millennium in June’s index-rebalancing trades highlights this dynamic.

SpaceX’s recent earnings report showed that the company could exit the year with an astonishing $100 billion revenue run rate, largely driven by enormous spending on artificial intelligence. However, beneath this facade lies a more pressing concern: whether Starlink is slowing down and whether Musk’s AI bet will pay off. Tuesday’s earnings only raised new doubts about these prospects, but analysts across Wall Street remain undeterred – even JPMorgan has lifted its price target to $240 from $220.

As Luria aptly put it, “You never bet against Elon.” But that’s exactly what we’re doing by following the crowd and betting on Musk’s vision without questioning its underlying assumptions. We need to take a step back and reassess our faith in these high-profile tech leaders before we get burned again.

The story of SpaceX is not just about its own trajectory but also about the broader market trends that are shaping it. As we watch this drama unfold, let’s remember that beneath the hype and speculation lies a complex web of human psychology and financial dynamics that demand our attention.