The AI Reset: Market Correction, SpaceX Opportunities and the Tesla Merger Question
Based on the latest Sunday Q&A from James at Invest Answers.
The past week has been difficult for investors, particularly those heavily exposed to artificial intelligence stocks. A sharp sell-off has raised questions about whether the AI trade has run too far, whether we are entering a more prolonged correction and whether investors should be reconsidering their allocations.
My view is that this is better understood as a significant market reset rather than the end of the AI investment cycle. There are several forces behind the recent weakness, but I believe the longer-term investment case remains intact. In fact, some of the price movements are beginning to create interesting opportunities.
There are also some important developments involving SpaceX, Tesla and the possibility of a merger between the two companies. I want to look at the implications for shareholders, particularly the relative value of holding one company over the other.
Understanding the recent AI sell-off
I see three main factors behind the recent market weakness. Individually, none would necessarily have caused such a dramatic reaction, but their combination has created a much larger correction.
1. Concerns about AI spending and debt
The first issue is the enormous amount of capital being committed to AI infrastructure. Technology companies are spending heavily on data centres, processors, memory, power generation and networking equipment.
Investors are beginning to question how much debt will be required to finance this expansion and whether the eventual returns will justify the expenditure.
These are reasonable questions. AI infrastructure requires substantial upfront investment, and the companies making these commitments need to demonstrate that the spending will translate into sustainable revenue and profits.
But I don’t believe the spending itself is evidence that the AI investment cycle is ending. Demand for computing capacity remains extremely strong, and the supply constraints across several parts of the industry suggest that the infrastructure build-out still has considerable room to grow.
2. Political pressure on AI infrastructure
The second factor is growing political resistance to new data centre developments in parts of the United States.
There are concerns about electricity consumption, water requirements and the impact of large facilities on local communities. Some politicians have started talking about restrictions or delays to new developments.
We should distinguish between political statements and actual changes to infrastructure plans. Many projects already have permits, construction commitments and equipment orders in place. The 2027 pipeline appears considerably more secure than some of the projects planned for 2028 and beyond.
There are also significant supply commitments involving companies such as Micron Technology (NASDAQ: MU), which manufactures memory chips, and SK Hynix (KRX: 000660), another major supplier of advanced memory used in AI systems.
Demand is so strong that long-term supply agreements are becoming increasingly important. This suggests that the infrastructure industry is still working to meet demand rather than struggling to find customers.
3. Valuation adjustments
The third factor is the repricing of stocks that had become expensive following their substantial gains.
Some investors are comparing current AI valuations with the dot-com bubble. I don’t think that comparison is particularly useful. Today’s leading technology companies have substantial revenues, established customers and, in many cases, significant profits.
Companies such as Nvidia (NASDAQ: NVDA), which designs the GPUs and computing platforms used in AI infrastructure, and Micron have real businesses supporting their valuations.
A falling share price does not automatically mean a company has become a poor investment. In many cases, it simply means the market is adjusting expectations and removing some of the premium previously attached to future growth.
The recent decline has been particularly severe. The US technology sector experienced its worst daily performance since March 2020, with the S&P 500 technology sector falling approximately 7% on the day discussed in the presentation.
This was a serious correction, but I don’t see sufficient evidence to conclude that the underlying AI investment thesis has broken.
Why the AI opportunity still looks attractive
One of the most useful ways to assess the current market is to compare the performance of AI-related companies with cryptocurrencies over the past couple of years.
The figures presented show a clear difference in performance:
- Nasdaq 100 (QQQ): approximately +30%.
- Nvidia (NVDA): +30%.
- Broadcom (AVGO): +64%.
- TSMC (TSM): +94%.
- Micron (MU): +57%.
- AMD (AMD): +29%.
- Marvell Technology (MRVL): +56%.
- Astera Labs (ALAB): +94%.
- ASML (ASML): +115%.
- Alphabet (GOOGL): +61%.
- Tesla (TSLA): +24.15%.
- Palantir (PLTR): +188%.
The cryptocurrency figures were considerably weaker:
- Bitcoin (BTC): approximately -1.25%.
- Ethereum (ETH): approximately -25%.
- Solana (SOL): approximately -50%.
- Strategy (MSTR): approximately -50%.
These figures help explain why capital has increasingly favoured AI infrastructure over cryptocurrency speculation.
I still believe blockchain technology and tokenisation will have an important role in the financial system. Bitcoin could also benefit from continued concerns about fiat currency purchasing power. But the market has yet to show the same level of confidence in crypto that it has demonstrated towards AI.
The lesson here is that investment themes can change quickly. Moving from one popular trade into another after a major run-up can be expensive. Investors need to consider valuations and timing rather than simply following whichever sector has performed best recently.
SpaceX: Why the recent weakness could be an opportunity
SpaceX is one of the most interesting companies in the current investment landscape. Its existing launch business, Starlink satellite network and ambitions in space-based computing give it several potential sources of long-term growth.
There have been concerns about a number of developments that could affect the share price in the short term, including a possible December share unlock, the prospect of a merger with Tesla, a potential Qualcomm transaction and political resistance to data centre construction in Texas.
I don’t think these concerns should automatically change the longer-term investment case.
For example, restrictions affecting some US data centre developments do not mean the entire infrastructure pipeline has been cancelled. Many projects are already committed, and the industry is still dealing with shortages of computing equipment, memory and power infrastructure.
The potential of data centres in space
One of the more interesting developments is SpaceX’s ambition to build AI computing infrastructure in orbit, referred to in the presentation as StarMind.
The proposed plan involves putting the first systems into orbit during the third quarter of 2027, followed by substantial increases in capacity during 2028 and 2029.
The concept is based on using SpaceX’s launch capabilities and satellite infrastructure to build computing capacity beyond the limitations of terrestrial data centres.
There are obvious technical challenges, including radiation protection, cooling, maintenance and the economics of launching and operating the equipment. But the potential is significant if these challenges can be addressed.
SpaceX is working with Nvidia on specialised chips for this application, including systems based on Nvidia’s Vera Rubin architecture.
The broader opportunity is that demand for AI computing could continue growing while building large data centres on Earth becomes increasingly difficult in certain locations.
If SpaceX can make orbital computing commercially viable, it could create another substantial business alongside its existing launch and satellite operations.
Starship and full reusability
Another important factor is the development of Starship.
SpaceX has already demonstrated the ability to catch and recover its Super Heavy booster. The next major milestone is achieving the same with the Starship vehicle itself.
Full reusability would change the economics of space launches. Rather than treating each launch as a largely disposable operation, SpaceX could potentially recover, refurbish and reuse both stages much more quickly.
This would reduce launch costs and increase the number of missions the company could undertake.
It would also strengthen the business case for deploying large numbers of satellites and eventually building computing infrastructure in space.
SpaceX valuation and price expectations
The analyst expectations discussed are extremely bullish, with several forecasts suggesting substantial upside over the next 12 months.
- Brian Wang: approximately $800.
- Doug: approximately $500.
- Andrew Beal: approximately $450.
- Colin Kenfield: approximately $345.
- Adam Jonas: approximately $300.
These are analyst expectations rather than guaranteed outcomes. One of the more ambitious scenarios assumes SpaceX can reach approximately $100 billion in annualised revenue by the end of 2026, with revenue potentially increasing to $300 billion by the end of 2027.
If that growth materialises, a share price around $600 becomes a scenario worth considering. The actual outcome will depend on execution, margins and the company’s ability to turn its ambitious plans into profitable operations.
My preference is to focus on the entry price rather than becoming overly attached to the most optimistic forecasts.
Tesla and SpaceX: What would a merger mean for investors?
The possibility of a Tesla and SpaceX merger is generating considerable interest. It is also creating confusion about which shares investors should own ahead of any potential transaction.
There is no certainty that a merger will happen, but it is useful to consider the possible outcomes.
The analysis presented uses the following illustrative 2030 market capitalisation assumptions:
- Tesla: $10 trillion as a standalone company.
- SpaceX: $15 trillion as a standalone company.
- Combined company: $25 trillion before allowing for any additional merger synergies.
These are long-term scenarios, not current valuations or guaranteed targets.
Under the assumptions used, SpaceX could deliver approximately 7.3 times the return for its existing shareholders in a merger scenario. Tesla shareholders could benefit from an additional premium attached to their shares in the transaction.
This creates an interesting difference between holding the two companies.
If no merger takes place, the analysis suggests that SpaceX offers the better potential return at its current entry valuation. The comparison begins to reach a break-even point if SpaceX rises towards $145.
If a merger does happen, Tesla shareholders could benefit from the premium attached to their existing shares.
For investors holding Tesla at a very low cost basis in a taxable account, selling could create an unnecessary tax liability. In that situation, holding may be the more sensible decision.
Investors who can make the switch without a tax consequence have more flexibility to consider a relative-value trade between the two companies.
Understanding share dilution
One issue that deserves attention in any merger is share dilution.
When a company issues additional shares, existing shareholders own a smaller percentage of the business. For example, if a company has 100 shares outstanding and increases that number to 110, each existing share represents a smaller proportion of the company.
This does not automatically destroy shareholder value. If the new shares are issued to acquire a business that adds more value than the dilution costs, shareholders can still benefit.
The important point is to understand the number of shares outstanding and how the transaction changes the ownership structure.
Share price is calculated by dividing a company’s equity market value, or market capitalisation, by its total shares outstanding. A larger company valuation does not necessarily mean an equivalent increase in the value of each individual share if the share count also increases.
Using the Tesla-to-SpaceX ratio to time rotations
Another useful part of the analysis is the relative-value chart comparing Tesla and SpaceX.
The chart tracks how many SpaceX shares an investor could theoretically acquire for one Tesla share. This gives investors a way to compare the relative prices of the two companies rather than looking at their share prices independently.
The ratio moved from approximately 2.15 SpaceX shares per Tesla share on 7 October to around 2.97 by 1 November.
That was a substantial change over a relatively short period.
The trend subsequently began turning, suggesting that the relative value had become less attractive at the higher ratio.
The chart also uses an ATR-based trend model. ATR stands for Average True Range and measures how much an asset typically moves over a given period, including gaps between trading sessions.
To calculate ATR yourself, first calculate the True Range for each trading period. This is the greatest of:
- The current high minus the current low.
- The absolute difference between the current high and the previous close.
- The absolute difference between the current low and the previous close.
ATR is then calculated as a moving average of these True Range figures, commonly over 14 periods.
It helps investors understand volatility and assess whether a price movement is significant relative to the asset’s normal trading range.
In the model discussed, orange indicates a preference for SpaceX, while blue indicates a preference for Bitcoin. The underlying idea is to use relative trends rather than making decisions based purely on short-term price movements.
How much exposure to Musk-related companies is sensible?
Another question concerned an investor already holding substantial positions in Tesla, Bitcoin and other technology companies, who was considering moving part of their Bitcoin allocation into SpaceX.
The concern was whether this would create too much exposure to Elon Musk-related businesses.
The example involved approximately 50% in Tesla and another 2–3% in SpaceX, giving a combined exposure of around 53%.
That is a significant concentration in companies associated with one individual.
The potential rewards are substantial if both businesses execute successfully, but the downside is equally important. If the combined exposure fell by 30%, the impact on the overall portfolio would be considerable.
The suggested upper limit in this discussion was around 55% exposure to Musk-related companies.
I would also consider the wider portfolio before increasing an already large position. Having strong conviction in a company does not remove the need to manage concentration risk.
There is a difference between holding a large position in a company with a strong long-term outlook and allowing a single investment theme to dominate an entire portfolio.
Marvell Technology: A sharp correction creates a different opportunity
Marvell Technology (NASDAQ: MRVL) designs semiconductor and networking solutions used in data centres, cloud computing and communications infrastructure.
It is another company benefiting from the expansion of AI computing, particularly the increasing demand for connectivity between processors, memory and other components inside large data centres.
The share price has experienced a dramatic correction. The original investment discussed was made around $75–$80, before the stock climbed towards $300 and subsequently fell back to approximately $141.
Its previous all-time high was around $330, while the Wall Street consensus price target discussed was approximately $338 over the following 12 months.
That represents a substantial difference between the current share price and analyst expectations.
One factor behind the recent weakness was the announcement of Marvell’s acquisition of Lumentum, a company involved in optical and photonic technology used in communications and data centre infrastructure.
The acquisition creates an opportunity for Marvell to strengthen its position in data centre connectivity, but investors still need to consider the cost of the transaction and how successfully the two businesses are integrated.
The longer-term investment case remains interesting. The growing need to move data quickly and efficiently between computing systems is a major part of the AI infrastructure market.
There was also a reference to Nvidia CEO Jensen Huang describing Marvell as a potential trillion-dollar company. That is an ambitious long-term view, not a valuation that should be treated as a near-term expectation.
For investors already holding Marvell, the main message was to remain patient rather than reacting to the sharp correction. The discussion did not provide a new recommended buying entry price for the stock.
UMAC: A speculative opportunity in the drone industry
Unusual Machines (NYSE American: UMAC) operates in the drone industry, supplying components and products used in unmanned aircraft systems.
The company was discussed as a small speculative position rather than a major portfolio holding.
The drone market has considerable potential, with applications across defence, security, industrial operations and commercial services.
UMAC has reported very strong growth in revenue and staffing, which makes it an interesting company to monitor. There was also discussion about possible political connections involving a member of the Trump family, but this was not confirmed.
A price target above $27 was mentioned in the question, based on expectations attributed to financial institutions. The response did not provide a clear endorsement of that target or a recommended buying price.
I would treat this as a speculative investment. Small positions can offer exposure to companies with substantial potential upside, but they should not become large holdings simply because the story sounds attractive.
The importance of patience and keeping cash available
One of the strongest lessons from the recent correction is the importance of not chasing stocks after they have already made substantial gains.
Marvell provides a good example. Investors who bought around $80 had an excellent opportunity as the share price climbed, but buying aggressively after a move towards $200 or $250 would have exposed them to considerably more downside.
Waiting for a correction or a return towards a more reasonable valuation can make a significant difference to long-term returns.
Keeping some cash available also provides flexibility. It allows investors to take advantage of market weakness without having to sell existing positions at an unfavourable time.
Markets do not move at the same speed. One sector may be expensive while another offers better value. The ability to rotate capital when relative valuations change is an important part of active portfolio management.
Conclusion: Companies and recommended entry prices
The recent AI correction has been severe, but I don’t believe it signals the end of the AI investment cycle. The combination of spending concerns, political uncertainty and valuation adjustments has created significant volatility.
SpaceX remains particularly interesting because of its existing launch business, Starlink network and potential expansion into space-based computing. Tesla also offers an interesting investment case, particularly when considering the possible merger and the premium that could be attached to its shares.
For investors looking for specific buying levels, these were the entry prices discussed:
- SpaceX (private company, no public ticker): Operates rocket launch services, Starlink satellite internet and is developing space-based computing infrastructure. The preferred buying range was below $140, with increasingly attractive prices below $135 and $130. The $126 area was also highlighted as a potential buying level. A separate limit order was filled at $125.
- Tesla (NASDAQ: TSLA): Manufactures electric vehicles, develops battery and energy storage systems, and is expanding into autonomous driving and robotics. The suggested buying level was below $350, reflecting the potential premium that Tesla shareholders could receive in a SpaceX merger.
These are the specific entry levels discussed, not guarantees that either share price will reach the projected targets. Investors should consider their own valuations, risk tolerance and portfolio exposure before making a decision.
Source: James from Invest Answers. This article is based on information shared in his free YouTube content. Readers looking for more detailed investment analysis, research and portfolio discussions can find additional material through the Invest Answers Patreon.
