AI companies just experienced a sell-off, with Space Exploration Technologies (NASDAQ: SPCX) stock — or SpaceX to its friends — among the fallers. The price soared after IPO on 12 June, opening at $150 — 11% ahead of the $135 initial offer price. And then it quickly climbed another 50% to hit a high of $225.64.
But a quick reverse took the price down to $147.11 on Tuesday (23 June), for an all-time low — though all-time does mean just 12 days in this case. The 34.8% slide from the peak technically falls into crash territory. Investors fear worse to come. So what should Scottish Mortgage Investment Trust (LSE: SMT) shareholders do now?
AI jitters
The tech stock rout that hit Wall Street appeared to be led by several factors…
- Doubts over AI spending sustainability
- Concerns over the true profit potential of AI
- Momentum simply running out of steam
If this does mark the start of a downturn, the SpaceX launch — which raised raised $85.7bn — might have been timed to perfection.
Nvidia and Intel also felt a fair bit of the pain. And Elon Musk’s Tesla is now down 10% over the past month.
I’m genuinely excited about SpaceX, and I’ll tell you the number one thing I like about it. The company’s rockets are behind nearly 80% of all payload mass lofted into orbit globally. That’s a cracking bedrock to support the rest of the company.
The long-term potential of AI and robotics? That ticks boxes too, but it’s still a big unknown. And unlike the profitable launch business, it’s burning through cash.
Putting a human colony on Mars? I doubt that’ll happen in the lifetime of anyone breathing today. And I haven’t the first clue how it could make a profit. It’s the kind of thing for government agencies to throw trillions at. Commercial interests should have greater potential opportunity once the high-risk ground has been broken.
So what about SMT?
So, on to fears for Scottish Mortgage. Its share price has also dropped. At the time of writing, it’s down 7.4% in the past five trading days. The reason seems obvious. On the latest valuation, it has 17% of shareholders’ assets tied up in SpaceX — which it first invested in privately back in 2018, at well below today’s price.
Interestingly, the share price hasn’t kept up with the investment trust‘s net asset value (NAV). And Scottish Mortgage shares can be bought at a 14% discount to the latest NAV at the time of writing. Hmm, maybe it’s time to think about topping up and effectively nabbing some SpaceX stock at below market value rather than considering selling?
What will I do? Neither. When I bought my shares I did so as a way to get some tech stock exposure in my ISA, but in a nicely diversified way. And I still want that. I expected (and still expect) plenty of share price volatility. But with my long-term horizon, I’m fine with that.
So what should investors do about Scottish Mortgage shares now? Maybe think about waiting until the current mini-panic works itself out, and then consider buying. And holding, of course.
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Alan Oscroft owns shares in Scottish Mortgage Investment Trust.
