Episode summary
The Trillion Dollar Gap | Aswath Damodaran on SpaceX, AI and the Big Market Delusion
Excess Returns
· · Guests: Aswath Damodaran
Summary
Aswath Damodaran argues that price, not company quality, determines whether a stock is a good investment, and he applies that frame to SpaceX and the broader AI trade. He says SpaceX combines difficult valuation problems: limited financial history, heavy reinvestment, uncertain growth, and a business mix that now includes space launch, Starlink, and xAI-linked AI ambitions. In his view, the company’s reported revenue base is still too small to justify the market’s enthusiasm unless the future unfolds in a very optimistic way.
He says the AI story is powerful but dangerous because huge total addressable markets can tempt investors to ignore unit economics, capital intensity, and competition. Damodaran argues that today’s AI buildout may be value destructive if growth comes with enormous capex, low gross margins, and rising costs for power, water, data centers, and training data. He is especially wary of stories that rely on the assumption that AI will replace people at scale, since that creates both business and societal risks.
He also says the character of the Magnificent 7 is changing as they become more capital intensive, and he sees restraint as a valid strategy, especially for Apple. On value investing, he argues the school became rigid, ritualistic, and righteous, and needs to broaden its definition of value to include intangibles, growth, and uncertainty rather than clinging to book value and old rules.
Key takeaways
- Damodaran says SpaceX is a great company but, at roughly 2.7 trillion, still too expensive for him because the future assumptions needed are extreme.
- He argues the AI market may be huge, but weak unit economics and heavy capex can make growth value destructive rather than value creating.
- Damodaran thinks the big market delusion comes from combining oversized TAM stories with overconfident entrepreneurs and VCs.
- He says the Magnificent 7 are becoming more capital intensive, which changes how investors should analyze margins, depreciation, and capex.
- He argues value investing must stop treating book value and asset-in-place thinking as sufficient and should include future growth and intangibles.
Notable quotes
“Any company can be a good investment at the right price. Conversely, any company can be a bad company at the wrong price”
“growth when it's accompanied by huge amounts of reinvestment and substandard gross margins which unfortunately the state of the AI market now insane amounts of capex might not just be neutral to value but actually be value destructive”
“the stories we're telling about 10, 15, 20, 25 trillion markets are actually terrifying stories for the rest of the world”
“I think what's so interesting about your framework is you're you're trying to bridge two competing camps”
How the episode opens
Any company can be a good investment at the right price. Conversely, any company can be a bad company at the wrong price. So this notion of good compan is a good investment.
Let that go. We make this mistake of assuming growth is always good. But growth when it's accompanied by huge amounts of reinvestment and substandard gross margins which unfortunately the state of the AI market now insane amounts of capex might not just be neutral to value but actually be value destructive.
What's SpaceX saying we're going to be players in this space? We're going to compete. We're going to win a significant market share of the AI market.
But in the same breath, you're also saying we're renting out space in our from our data centers to our biggest competitors. If AI is a tool, it's going to be a much smaller market than AI replaces people. So the stories we're telling about 10, 15, 20, 25 trillion markets are actually terrifying stories for the rest of the world.
Our guest today is the legendary Azworth Deodorin who has been teaching corporate finance at NYU for over four decades earning him the moniker the dean evaluation. He has published a dozen books on finance investing and posts regularly at his blog musings on markets. I am particularly excited to have professor demoterin on as a guest on the intangible economy as he has been a long-standing advocate for the importance of intangible assets in company valuation.
In my opinion, this lens has helped them apply classical valuation techniques to a much broader set of companies ranging from asset light tech companies to consumer brands to younger firms earlier in their corporate life cycle. Professor Awatin, thank you for taking the time and welcome to the intangible economy.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- spacex valuation
- ai capex
- intangible assets
- ai unit economics
- value investing delusion
Companies and tickers mentioned
- NVDA
- MU
- SpaceX
- Starlink
- xAI
- Nvidia
- Micron Technology
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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