A recent Morgan Stanley (MS) note confidently predicted Elon Musk will become the world’s first trillionaire due to SpaceX. Musk, who has attracted a fandom more dedicated than many of Steve Jobs’s fans in the 2000s, has more recently become embroiled in scandal after (among other things) allegedly mistreating workers, underpaying said workers, attempting to steal competitors’ trade secrets, baselessly calling the caver who saved trapped Thai boys a pedophile, breaking a few SEC regulations (and securities laws), and calling into question mainstream COVID-19 regulations.
All of this has made the Cult of Musk (a term used unironically among many TSLA fans) a bit less beyond reproach than it was years ago, but for his fans and supporters he still represents a kind of optimism for the future that is hard to argue against, and it is easy to accuse his opponents of being defeatist, non-progressive, nihilistic, or simply lacking the intelligence to see the future. These criticisms also happen to benefit Musk’s supporters–it paints them as the enlightened ones.
If this doesn’t sound like a financial debate, that’s because it isn’t. What’s happening here is a kind of culture war and, like other culture wars, the debate often goes ad hominem and has little to do with the facts of the matter or the future. And it also turns into histrionics; saying that Musk will become a trillionaire because SpaceX is “challenging any preconceived notion of what was possible and the timeframe possible, in terms of rockets, launch vehicles and supporting infrastructure,” has much less to do with balance sheets and revenue growth rates and more with a romantic vision of the future. That vision may be true; it might not.
This is where short selling comes in.
SpaceX is not a public company so it cannot be shorted, and it might be that this note is correct and SpaceX should not be shorted (and, for that matter, nor should Tesla (TSLA), whose recent quarterly earnings were very impressive on the top and bottom lines). But this is the kind of rhetoric and data-less prognostication that attracts short selling, sometimes for right and sometimes for ill.
Literally, bubble talk revolves around saying an investment will “go to the moon,” a kind of hyperbole that was mocked by conventional finance until it was co-opted by the meme stock crowd and became a refrain of WallStreetBets. Talk of a trillion dollars because of space exploration is rocketship emojis in real life.
Without assessing whether critiquing this optimistic, starry-eyed (literally) vision of the future is right or wrong, we can look at the inflation of future number estimates (trillion) and the inflation of the rhetoric of analysis (“SpaceX may eventually be the most highly valued company in the world – in any industry” the note opines).
At some point, this inflation must be wrong. Maybe MS’s analyst is right and Musk will become the first trillionaire; what if another analyst writes that he will become the first quadrillionaire? Quintillionaire? What if the rhetoric goes beyond saying SpaceX won’t just become the most valuable company in the world, but it will become the only company in the world–SpaceX will topple governments, take over nations, and rule everyone in a post-scarcity utopia akin to Star Trek, where Papa Musk (That term comes from his fans) singlehandedly determines right versus wrong.
At some point this Musk optimism will be wrong–and at that point the short sellers can come in, bet against the cult, and profit enormously when the momentum ends.
This is not to say that it will end or should end–or that the trillion dollar valuation on Musk’s portfolio is right or wrong. But it is to say that qualitative analysis driven on emotion and bolstered by intense rhetoric can result in overvaluations that short sellers can profit from. It is no surprise that people caught in the fervor would see the short sellers not just as wrong, but as downright evil.