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Key takeaways

• A net 54% of people surveyed by the University of Michigan’s survey of consumers said they expected unemployment to rise in the year ahead.
• By contrast, official data on the labor market shows it remaining resilient. The unemployment rate is near historic lows, and job creation is firming up after a shaky 2025.
• The "K-Shaped" economy could be responsible for this and other disconnects between hard data and public opinion.

There's a growing disconnect between what the official data says about the job market and how it feels to workers.

That's according to the University of Michigan's Survey of Consumer Sentiment on Friday, which showed ongoing and widespread pessimism about the labor market's trajectory. A net 54% of respondents to the survey said they expected the unemployment rate to rise over the next 12 months, according to an analysis by ING bank, close to a historic high.

"That reading is on a par with the readings experienced during the Global Financial Crisis and the early 1990s recession," James Knightley, chief international economist at ING, noted in a commentary.

What This Means For The Economy

Dismal consumer sentiment could translate into lower consumer spending, hurting overall economic growth.

The official data tells a different story. The unemployment rate remained near a historic low at 4.3% in May, the Bureau of Labor Statistics said. What's more, its trajectory is on the upswing, with solid job creation over the last three months marking a recovery from 2025, when the economy added the fewest jobs outside of a recession since 2003.

The trajectory of the economy depends on whether the public is overly pessimistic or survey respondents are picking up a trend before it shows up in hard data. And it's not the only area of economics and personal finances where public sentiment and hard numbers diverge: for example, consumer spending continues to rise despite historically high pessimism about the cost of living amid rising inflation in opinion polls.

Some of the disconnect could be explained by the "K-shaped" economy, where well-off households are riding the soaring stock market to greater wealth and comfort, while those at the bottom are seeing their living standards erode as prices rise faster than their paychecks.

"Consumer spending is being driven by higher income households, who are buoyed up by big wealth gains, whereas sentiment reflects the median American," Knightley wrote in a commentary. "Unfortunately, they are seemingly finding the current economic situation much more challenging."

Adobe's stock has lost roughly half its value in the past 12 months
Credit: Clive Rose / Getty Images

Key Takeaways

• Adobe shares hit their lowest point in more than eight years following the Photoshop maker's latest earnings report.
• While its results topped estimates, Adobe warned its strategy to grow users could hold back revenues, and the company is losing another top executive.

Worries about Adobe's growth plans and turnover inside the company's C-suite have the stock tumbling to its lowest point in eight years.

Adobe (ADBE) shares were down 7% to around $202 in recent trading, their lowest level since early 2018. Adobe was among the leading decliners in the S&P 500 on day when markets gained broadly, after the company warned its strategy to grow users could hold back revenues, and announced the departure of its CFO.

Executives said during Thursday's earnings call that Adobe is looking to prioritize growing users of its AI features through its "freemium" model, allowing users to try its AI products without facing paywalls, and delaying previously planned price increases—decisions they said could hamper short-term revenue growth.

Adobe also said Thursday that CFO Dan Durn is departing the company at the start of next week, marking the loss of another top executive after announcing in March that longtime CEO Shantanu Narayen will step down once a successor is found. Durn is taking the CFO job at chipmaker Marvell Technology (MRVL).

Why This Matters to Investors

The news could add to recent woes for Adobe, after a monthslong slump in its stock amid worries about growing competition and disruption by AI.

The announcements overshadowed otherwise solid results. Adobe reported adjusted earnings of $5.96 per share on $6.62 billion in revenue for its fiscal second quarter, each better than analysts had forecast. Adobe's third-quarter targets also topped estimates, and the company lifted its full-year revenue and adjusted EPS outlook.

"Meaningful growth acceleration and share gains from AI would be a clear rebuttal from Adobe that it is outpacing the pack," William Blair analysts wrote following the results. "However, this seems unlikely in the near term, which suggests the sentiment overhang is likely to linger, especially with a CEO transition in the works."

UBS analysts cut their price target to $225 from $260 Friday, and said they worry that Adobe stock could "fade even further" following the strategy shift deprioritizing revenue growth, and that the availability of free AI tools could give Adobe less leverage to raise prices in the future.

With Friday's losses, Adobe shares are now down more than 40% since the start of the year, and have lost roughly half of their value in the last 12 months.

Demand destruction occurs when consumers reduce their demand for a certain good in response to persistent high prices or limited supply.
Credit: David Paul Morris / Bloomberg via Getty Images

Key Takeaways

• Rising energy prices from geopolitical tensions could weaken consumer spending.
• Inflation pressures are easing, but consumer spending may slow as savings shrink and wages stagnate.

A resilient U.S. consumer has kept the economy afloat the last few years, but momentum could stall if Iran peace talks falter and the war sparks more inflation, analysts say.

It’s a phenomenon economists call "demand destruction"—when prices are so high that people spend less. Downbeat consumers may hold off on buying a new car, skip a vacation, cook at home rather than dine out or cut down on luxuries.

All combined, the hit to consumer demand would weaken economic growth—perhaps so much that the U.S. economy tips into a recession or approaches one, analysts say.

"It could be very serious, especially if the Strait of Hormuz remains closed for quite a while more," said Tuan Nguyen, an economist at the accounting firm RSM US LLP, referring to the critical chokepoint where a fifth of the world’s oil supply travels.

Why This Matters

Consumer spending has been the backbone of U.S. economic growth. If higher energy costs erode household purchasing power, inflation could persist and recession risks could rise for consumers and investors alike.

Any worries would dissipate if the Iran war ends soon and oil and other commodity markets are mended, Nguyen said. But the economy would take a bigger hit if the disruptions persist, with lower-income consumers at risk of feeling a bigger squeeze, he added.

"We are living in a K-shaped economy," Nguyen said. "Because of that, demand destruction is not going to hit everybody the same way, or even at the same time."

Optimism, for Now

Thus far, the economy has remained on track. U.S. employers added 172,000 jobs in May, and consumers haven’t pulled back too much despite ultra-weak confidence surveys.

Airline executives say travelers are booking flights even if they’re pricier. Consumers are still buying Starbucks lattes and Chipotle bowls.

There are signs of shifting priorities, with Home Depot cautioning that homeowners are delaying big-ticket home improvement projects. But with jobs still growing, consumers "still have the capacity to spend" even if some trim non-essential spending, wrote Richard de Chazal, macro analyst at William Blair.

"If the war continues, however, and energy supplies start to become unavailable even at high prices, demand destruction will start to set in and confidence will have further to fall," he wrote. "But for now, they are still hanging in there."

There are signs that the worst of the inflation pressures are ending, too. Inflation is at its highest pace since 2023, but the May data showed few broad-based pressures beyond energy prices. Average U.S. gasoline prices have fallen from $4.5 a gallon in mid-May to $4.15 earlier this week.

That’s largely because oil traders are optimistic that peace is near, with the global Brent crude oil benchmark now hovering near $90 a barrel. That’s quite a bit higher than the $60 mark at the start of the year, but below the roughly $120 peak when Iran-U.S. tensions were at their highest.

However, oil prices could reach $150 if the Iran war heats up again, according to Jorge León, head of geopolitical analysis at the research firm Rystad Energy. Hostilities resumed earlier this week before simmering again on Thursday, with U.S. President Donald Trump calling off another round of air strikes and indicating a peace deal was near.

"The next few days will be critical in determining whether diplomacy can reassert itself or whether the conflict moves into a more sustained escalation cycle," León wrote.

Smaller Buffers Today

Strong consumer spending helped the U.S. economy weather a similar challenge in 2022, when inflation rose to decades-high levels, partly due to the Russia-Ukraine war disrupting food and energy markets.

Inflation hit an eye-popping annual rate of 9.1% in 2022, which makes the 4.2% increase this May seem mild.

But demand was scorchingly hot in 2022, leaving room for some destruction. Consumer spending on services rose sharply as the pandemic eased, helped by pandemic-era savings, low interest rates and leftover stimulus. A revival in restaurant spending, Taylor Swift tickets and travel all helped prove widespread fears of a recession wrong.

"Back then, demand was so strong that we didn’t have the demand destruction problem," RSM’s Nguyen said, but there’s "a smaller margin for error now."

GDP growth has been relatively sluggish, he noted, and it’s increasingly driven by investments in data centers and artificial intelligence rather than consumer spending.

Weaker wage growth and slimmer savings buffers could also make it harder for consumers to keep up, according to Vail Hartman, U.S. rates strategist at BMO Capital Markets.

Markets appear to have a “rather optimistic view” about consumers’ ability to withstand another round of inflationary pressures, Hartman wrote. But that sunny outlook may be misguided.

"The erosion of consumers’ real purchasing power has left us wary of a slowdown in consumer spending later this year, if not in the coming months," Hartman wrote.

Nvidia CEO Jensen Huang has said China's market could represent a $50 billion opportunity annually for Nvidia.
Credit: Lam Yik Fei / Bloomberg / Getty Images

Key Takeaways

• Nvidia has told Chinese customers its could be ready to sell more advanced AI chips in the country as soon as August, Reuters reported.
• Nvidia, which has grappled with restrictions on exports of its most capable chips, has long been looking to boost its sales to China.

Nvidia could be getting closer to selling more of its AI chips in China.

Nvidia (NVDA) has started telling customers in China that its next-generation AI chip, the Vera CPU, could become available in the country as soon as August, Reuters reported Friday. At least one Chinese company is planning an order of at least 300 servers with the new Vera chip to test the hardware before ordering more, according to the report.

Such a development would mark a major breakthrough for Nvidia, which has struggled to sell more of its AI chips to the country in the face of restrictions on exports of its most capable chips, and has long been looking to boost its sales to China.

Nvidia did not respond to an Investopedia request for comment on the report in time for publication.

Why This Matters to Investors

Nvidia executives have said that greater access to China's market could significantly boost sales, with CEO Jensen Huang previously telling investors that China's market could represent a $50 billion opportunity for the company annually.

Still, while around 10 Chinese companies have been approved by the U.S. government as customers for Nvidia's less advanced line of H200 chips, Reuters reported that none of those chips have actually been delivered, as the Chinese government has discouraged sales to boost domestic chipmakers. Last month, Nvidia told investors it had yet to record any revenue from sales of those chips to China.

Nvidia shares were little changed in recent trading. The AI chip leader's shares are up about 10% since the start of the year.

Incoming Federal Reserve Chair Kevin Warsh has some changes he'd like to make at the central bank.
Credit: Anna Moneymaker / Getty Images

Key Takeaways

• The Fed is widely expected to keep its key interest rate unchanged as it remains in "wait-and-see" mode.
• Wednesday's meeting will be the debut of Chair Kevin Warsh, who has promised "regime change" at the Fed.
• Among the major open questions is whether Warsh will resume advocating for cutting interest rates.

The Federal Reserve will have its first meeting under the new management next week, and no one is entirely sure exactly what to expect.

One thing is nearly certain: the central bank is overwhelmingly likely to keep its influential fed funds rate flat for the time being. Financial markets are pricing in a 96% chance the Fed will hold rates steady, according to the CME Group's FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

Beyond that, however, there are many open questions about how Warsh will lead the Fed into its next era.

Warsh is taking leadership of the Fed at a time when it faces increasing risks to its dual mandate from Congress to keep inflation in check and employment high. The former Fed governor's approach to monetary policy will be tested immediately: the Iran war is pushing up energy prices, threatening to stoke more persistent and widespread inflation.

Will Warsh Push For Rate Cuts?

Warsh has been silent about his prescription for the Fed's monetary policy since President Donald Trump began considering him for the nation's top banking job last year. Before that, however, he advocated for a lower fed funds rate, in line with Trump's frequently repeated demands.

Whether that preference has survived the past year of economic changes is one of the major open questions that could be answered at Wednesday's meeting.

The fed funds rate is central bankers' main tool for managing monetary policy. The Fed raises it when its goal is to push up borrowing costs across the economy to discourage borrowing and spending and stifle inflation. Its playbook calls for rate cuts when the economy is weak and inflation is low, thereby boosting the job market.

These days, high inflation is on the minds of many policy committee members, since the Iran war has pushed up prices for gasoline and other necessities. Meanwhile, the job market has remained resilient, with unemployment near historic lows.

Given the recent resurgence of inflation, Warsh may find it a tough sell to convince a majority of the committee that a cut is the right move, even if he thinks so.

"If a very dovish Warsh shows up, that may breathe some life into the utterly deflated prospects for a cut," economists at Wells Fargo Securities led by chief economist Tom Porcelli, wrote in a commentary. "Unfortunately for Warsh (assuming he actually does have dovish leanings), the economic reality is recent data and our sense of the FOMC's reaction function argue there is a high hurdle to cut at this juncture. But let's see what he has to say."

What Will He Say About The Fed's Intentions?

Questions surround not only what Warsh will say, but how much.

Under previous Fed Chair Jerome Powell, the central bank's monetary policy moves rarely came as a surprise, since the committee telegraphed their thinking well in advance. That could change under Warsh, who has criticized the Fed's policy of issuing "forward guidance," arguing that it makes central bankers too reluctant to change their minds about policy when they need to pivot quickly.

On Wednesday, the FOMC is scheduled to provide forward guidance in the form of a quarterly summary of economic projections from its policymakers. Warsh has been critical of that practice, and Wednesday would be his first opportunity to make a change.

The Fed chair's traditional post-meeting press conference Wednesday afternoon will be another chance for Warsh to make a break from his predecessors: Warsh could be more guarded than Powell about his thinking about future monetary policy, and has also criticized the frequency of the conferences, so it's possible he could hold them less often.

Warsh could also make his mark by removing forward guidance from the FOMC's official statement that's issued alongside the committee's rate decision. Under Powell, the statement typically indicated what the Fed expected to do next with monetary policy. For example, the most recent statement contained faint hints that the Fed's next rate move will be a cut, language that some hawkish FOMC members opposed.

"We suspect his initial efforts will be to pare back the Federal Reserve's communications in a less-is-more strategy," Michael Pearce, chief U.S. economist at Oxford Economics, wrote in a commentary. "That could rapidly appear in the form of paring back the policy statement to include less forward guidance."

What Will Warsh's 'Regime Change' Look Like?

Beyond that, Warsh has promised "regime change" at the Fed, and Wednesday will be his first chance to say what changes he intends to make. At his confirmation hearing, Warsh said he would change how the central bank measures inflation, for instance, and also said the Fed should reduce the size of its balance sheet.

"The more interesting question heading into next week is not what the Fed decides, but what Warsh's debut tells us about how he intends to lead the institution and how he plans to earn the credibility to eventually move rates in either direction," Jake Krimmel, senior economist at Realtor.com, wrote in a commentary.

News of the day for June 12, 2026

SpaceX raised some $75 billion, pointing to an initial valuation near $1.8 trillion.
Credit: Patrick T. Fallon / AFP / Getty Images

Stock futures are pointing to a higher open for major indexes as the market looks to close out a volatile week of trading on a high note; shares of SpaceX are set to start trading in what is the biggest IPO ever; Adobe shares are falling amid worries about the company's AI growth strategy; Nvidia has reportedly told customers in China that its Vera CPU will be available to them as soon as August; and Flutter Entertainment is delisting from the London Stock Exchange as the owner of the FanDuel sports betting site focuses on the U.S. Here's what you need to know today.

Stock Futures Rise After Yesterday's Huge Gains

Stock futures are rising this morning as investors await the debut of SpaceX (more on that below) and monitor developments related to the Iran war. Dow Jones Industrial Average futures were up 0.8% recently, while futures linked to the S&P 500 and the tech-heavy Nasdaq rose 0.7%. The major indexes surged yesterday after two days of losses as investors shrugged off concerning inflation reports amid optimism that the U.S. and Iran could strike a deal. WTI crude oil futures were down more than 3% at $85 per barrel, trading at their lowest level in nearly two months, after President Trump yesterday called off strikes against Iran and said an agreement could come over the weekend. Gold futures were up nearly 3% at $4,230 an ounce, while bitcoin was little-changed at $63,600. The yield on the 10-year Treasury, which affects interest rates on loans, held steady at 4.47%.

SpaceX Stock Set to Start Trading Today

IPO history will be made today. Shares of Space Exploration Technologies, better known as SpaceX -- Elon Musk's space exploration, connectivity and artificial intelligence company -- are set to start trading today in what is the biggest IPO ever. The company, which will use the ticker symbol "SPCX," sold more than half a billion shares at $135 each, raising some $75 billion and pointing to a valuation near $1.8 trillion. Investor interest in the deal looks massive, raising the possibility of a first-day pop. For some background reading from Investopedia, check out our primer on the deal, our examination the key questions facing investors, and our look at exactly how the company makes its money.

Adobe Stock Slips Amid Concerns About AI Growth Plans

Adobe (ADBE) shares are falling this morning despite better-than-expected quarterly results amid investors concerns about the Photoshop maker's growth strategy. Adobe said after the bell yesterday that it earned an adjusted $5.96 per share on $6.62 billion in its fiscal second quarter, each better than analysts had forecast. However, executives said on Thursday's earnings call that Adobe's short-term revenue growth could be pressured while it prioritizes adding users through the "freemium" model of letting them use AI features before getting them to upgrade and pay for the services. Adobe also announced the departure of CFO Dan Durn, who is becoming the CFO at Marvell Technology (MRVL), meaning Adobe is now losing its CFO and CEO. The company announced in March that longtime CEO Shantanu Narayen will step down once a replacement is found. Adobe shares, which have lost nearly 40% of their value since the start of the year, were down 8% in premarket trading.

Nvidia Starts Pitching Vera CPUs to China, Report Says

Nvidia (NVDA) is looking to take the next step in re-establishing its business in China, telling clients there to prepare for a new product, Reuters is reporting. Nvidia has told customers that its Vera CPU is expected to be made available to the region as soon as August, and some companies are considering small orders to test the new hardware, according to the report. Nvidia has been working to regain the market share it lost in China after export controls from the U.S. caused its sales in the country to plunge. The Biden and Trump administrations each claimed it was a matter of national security to keep the most advanced AI chips out of China. Nvidia shares are little-changed this morning.

FanDuel Parent Flutter Entertainment Delisting From London Exchange

Flutter Entertainment (FLUT), the parent company of sports betting giant FanDuel, plans to delist from the London Stock Exchange as of Aug. 3, making its shares available only on the New York Stock Exchange. The company moved its primary listing to the U.S. about two years ago, and now says it is "in the best interests of the Company and its shareholders" to delist in London. The company cited the level of trading activity of its London shares, as well as the costs around regulatory and administrative requirements to maintain the London listing. Flutter's U.S.-traded shares were up less than 1% ahead of the opening bell.

Stagflation concerns have been stoked by higher gas prices.
Credit: Al Drago / Bloomberg via Getty Images

Key Takeaways

• Accelerating wholesale inflation combined with an uptick in unemployment claims hints at risks of "stagflation" in the economy.
• The Iran war has pushed up energy prices, and those prices are feeding through to other costs paid by producers.
• Wholesale costs are a leading indicator of consumer prices, signalling that higher inflation could be in store.

Two pieces of economic data released Thursday carried a whiff of "stagflation," signaling that inflation could worsen and hinting at weakness in the job market.

The Producer Price Index for final demand, a measure of wholesale prices, rose 1.1% over the month and 6.5% over the 12 months ending in May, the Bureau of Labor Statistics said. That was the largest annual increase in wholesale prices since November 2022 and a warning that businesses will pass those cost increases along to consumers. 

Separately, 229,000 people filed new claims for unemployment benefits last week, up 4,000 from the week before and the most since February, the Department of Labor said.

What This Means For You

Higher prices and a weakening job market would hurt living standards in two ways, by making the cost of living more expensive while restricting peoples' ability to earn income.

Together, the reports showed a rising risk that the economy could enter a state of stagflation, or stagnant economic growth combined with high inflation. The PPI report tarnished the silver lining of Wednesday's consumer inflation data, which showed "core" prices outside of food and energy rose less than expected in May despite accelerating overall inflation.

"Price pressures are building even with core inflation below estimates," David Russell, global head of market strategy at TradeStation, wrote in a commentary. "Stagflation could be rearing its ugly head. Inflation is heading in the wrong direction."

Economists pointed to the Iran war as the main reason for the data results on Thursday. As the fighting in the Middle East continues, the Strait of Hormuz is effectively closed, cutting off much of the oil supply. That is raising gas prices, which in turn pushes up the costs of items across the economy as retailers pass on increased transportation costs to consumers.

The PPI measures prices producers pay and is an imperfect but significant leading indicator of consumer prices in the months ahead. The 1.1% monthly increase in the index was higher than the 0.7% forecasters had expected, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

The report showed wholesale price hikes were spreading beyond gasoline and diesel fuel in May, an ominous sign for the trajectory of inflation. Prices excluding volatile food, energy, and trade services rose 5.6% over the year, the largest increase since September 2022.

The rising prices could hurt the economy in some fashion, no matter how businesses choose to deal with them.

"The consequences of continued cost pressures for businesses will be a reckoning of whether those costs can be passed on to consumers, who continue to spend despite higher costs, or to find cost savings elsewhere, which implies risks for U.S. employment security," Kurt Rankin, senior economist at PNC, wrote in a commentary.

The uptick in unemployment claims set off fewer alarm bells, but could be an early warning sign of trouble in the labor market. Low unemployment has been a bright spot for the economy over the last three months, with job creation remaining resilient.

"The big picture is that initial claims remain very low by any reasonable standard," Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, wrote in a commentary.

However, Allen said some other indicators in the labor market suggested its main challenge is slow hiring rather than mass layoffs, and that the unemployment rate could creep upwards in the coming months due to a lack of job creation.

Despite recent declines, Coherent shares are up about 90% year-to-date, while Lumentum shares have more than doubled in value.
Credit: Matthias Balk / picture alliance / Getty Images

Key Takeaways

• JPMorgan analysts said Thursday that they would recommend buying into shares of Coherent and Lumentum following a recent pullback.
• The hardware makers have seen their stocks fall recently after soaring to record highs earlier this year thanks to investments from Nvidia and strong demand.

A pair of Nvidia-backed stocks that were among investors' favorite AI names earlier this year, have pulled back lately. JPMorgan analysts see that as an opportunity.

The analysts reiterated "overweight" ratings on Coherent (COHR) and Lumentum (LITE), and recommended buying the dip. In a note to clients Thursday, they wrote that the stocks have been "weighed down by a host of concerns" as they have each slipped about 20% from highs experienced earlier this month, about four times the 5% decline the S&P 500 has seen in the same time.

Among the concerns were a lack of catalysts to drive the stocks higher over the summer after posting big rallies to start the year, along with worries about the rate of adoption of so-called co-packaged optics, connectors made by Coherent and Lumentum that are replacing copper wiring in some AI data centers. The analysts said they see the concerns as overblown, and said they have created an opportunity for investors to buy into the stocks.

Why This Matters to Investors

The affirmed ratings and price targets could help improve sentiment around Coherent and Lumentum, and reignite a rally that carried shares of the companies to record highs earlier this year.

The analysts maintained their targets of $380 for Coherent and $1,130 for Lumentum. Among the analysts tracked by Visible Alpha with current ratings of the stocks, Coherent has an average target of $413, while Lumentum stands at about $1,110.

Coherent shares were up 1% at about $358 in late trading Thursday, while Lumentum shares rose more than 3% to $883. So far this year, Coherent shares have jumped roughly 90%, while Lumentum shares are up 140%.

Shares of both makers of optical networking equipment companies were boosted back in March by announcements that Nvidia (NVDA) was investing $2 billion in each, and would collaborate with the companies on future products. The news that the companies were joining the S&P 500 also lifted shares, as well as Lumentum's CEO saying the company was nearly sold out of its production capacity through 2028.

SpaceX has priced its IPO at a level that would give the company a valuation of nearly $1.8 trillion.
Credit: Patrick T. Fallon / AFP / Getty Images

Key Takeaways

• Oppenheimer on Thursday initiated coverage of SpaceX with an "Outperform" rating and a price target 40% above its IPO price, citing its large potential market and technological advantages over competitors.
• Elon Musk's space exploration, satellite and artificial intelligence company is expected to debut on Friday in the largest IPO ever.

An early review of SpaceX stock is in, and it's glowing. 

Oppenheimer on Thursday initiated coverage of SpaceX stock with an “Outperform” rating and a $190 price target. SpaceX shares are expected to begin trading tomorrow under the ticker “SPCX” at a $135 IPO price.

“We believe that SpaceX will use its expertise in engineering, manufacturing and space technologies to grow to the largest communications, cloud/AI company in the world,” Oppenheimer analysts wrote in a note on Thursday. They expect the company's sizable technological lead in rocket and satellite technology, its vertical integration and its scale to help it grow revenue from $19 billion last year to more than $200 billion by 2030. 

Why This Is Important

The size of SpaceX's impending IPO has made it one of the buzziest events on Wall Street in recent memory. How the market reacts to its debut, expected Friday, may set the tone for mega-IPOs from Anthropic and OpenAI that could come later this year.

They see SpaceX as a leader in three distinct lines of business—Starlink and connectivity, launch and space services, and artificial intelligence—that overlap such that each unit contributes to the others’ success and lowers costs across the company. Today, Starlink is the cash cow. It grew revenue about 50% last year, accounting for more than half of total sales. Its healthy free cash flows are helping to fund the massive capital expenditures of the launch and AI businesses. 

The launch business, and specifically its next-generation Starship, “is key to SpaceX’s success,” according to Oppenheimer. Starship is still in tests, but once operational it’s expected to cut SpaceX’s “cost-to-orbit” to about $100 per kilogram from about $2,700 today. Oppenheimer believes lower costs will enable SpaceX to expand its Starlink satellite constellation and make data centers in space economically viable, supporting its third business line—AI. 

SpaceX puts the potential value of its AI business at $26 trillion—about 90% of its total addressable market—but it has a long way to go. AI is the company’s least mature business, with just over $3 billion in revenue last year. Its Grok model trails competitors from Alphabet, OpenAI and Anthropic in capabilities. AI is also its most expensive business, accounting for more than 60% of SpaceX’s capital expenditures last year. 

According to Oppenheimer, SpaceX could build “a vertically integrated AI stack that no other company on Earth can replicate.” That full stack will consist of a foundational model (Grok); an application layer, secured through the possible acquisition of AI coding agent Cursor; semiconductors designed and made in-house as part of its Terafab project; and orbital data centers. Whether the last component is even possible is still unknown, “but SpaceX has arguably the best engineers and the company has a history of executing on tough deliverables,” says Oppenheimer. 

Granted, investing in SpaceX comes with a lot of risk. Its valuation is rich, with shares priced at 100x sales. The most expensive stock in the S&P 500 by that measure, Palantir (PLTR), has a price-to-sales ratio of about 65. It’s especially pricey considering growth hinges on unproven technologies. Oppenheimer also expects the stock’s small float—less than 5% of shares will trade following its IPO—to make it volatile. And then there’s Elon Musk, who has complete control over SpaceX, runs several other companies, and “has historically had controversial political/social views” that have hurt business in the past. 

These risks—especially the valuation—have some market watchers recommending investors sit out Friday's debut and wait for shares to re-enter Earth's stratosphere. Morningstar recently valued SpaceX at $780 billion, nearly $1 trillion less than what's implied by its IPO price. They expect shares to catch an updraft from investor enthusiasm and a scarcity of shares on day one, but to face resistance in the following months as new stock hits the market and investors look ahead to more blockbuster IPOs on the horizon.

But, ultimately, Oppenheimer estimates the risks pale in comparison to the galactic opportunities. They see potential for SpaceX to expand the horizons of the economy itself and pioneer industries like lunar development, interplanetary passenger and cargo transport, space tourism, and asteroid mining, just to name a few. 

“Should SpaceX execute on its mission—and we believe it will—it will be the modern-day East India Company of space, controlling routes, infrastructure, and commerce of an entire frontier and giving it a quasi-sovereign reach, far beyond that of any ordinary corporation.”

Major benchmark indexes including the S&P 500 and the Nasdaq 100 are recovering.
Credit: Photo by Michael M. Santiago / Getty Images

Key Takeaways

• Market observers and investment experts appear sanguine about U.S. stocks' outlook as a dip-buying mentality appears to still hold.
• The market catalyst to watch is the Federal Reserve meeting scheduled next week, Capital.com analyst Daniela Hathorn said.

Dip buyers saved the day.

Major benchmark indexes closed higher Thursday, with all three leading indexes finishing well in the green, after a days-long tech stock sell-off that renewed concerns about the sustainability of the AI trade. Most of the Magnificent 7, among the biggest stocks in the market, logged gains today—save for Meta Platforms (META) and Microsoft (MSFT)—some experts are optimistic that U.S. stocks can continue to rise. Inflation concerns amid ongoing geopolitical tensions in the Middle East appear to be taking a backseat, though they may emerge again as next week's Federal Reserve meeting draws closer.

"We weren't overly surprised here to see a little bit of a pullback," Manulife John Hancock Investment Management's co-chief investment strategist Emily Roland told CNBC Thursday morning. "But of course we wake up this morning and this is a dip buyer's dream market."

WHY THIS MATTERS TO YOU

Market experts are saying U.S. stocks could continue to rise in the near term, but they're watching for signs of higher interest-rate expectations.

The firm's outlook for stocks remains positive, in part, because the "earnings engine in the United States is on," Roland said. She sees two big forces dominating markets right now: Private companies starting to tap the equity market, as illustrated by the massive SpaceX IPO expected tomorrow, and central banks potentially raising interest rates, in the face of inflation caused by an energy shock downstream of the U.S.-Iran conflict. Taken together, she said, it makes for an "unusual" setup for markets.

Meanwhile, two risks the firm is monitoring—high-yield credit spreads, or what corporate bonds pay compared to U.S. Treasurys, and the labor market—aren't overly concerning at present, she said. Widening spreads can signal a lack of confidence in companies' financial well-being since they indicate a requirement of more potential return in exchange for risk; a too-hot jobs market can push the Federal Reserve toward interest-rate hikes that weigh on markets.

There are signs of caution in the mix. Investors surveyed by the American Association of Individual Investors said they were feeling more bearish about the stock market for the next six months as of yesterday, with about 30% feeling "bullish" compared to 36% the week prior; more than half of respondents said that some, but not all AI-related stocks were "too expensively valued." CNN's Fear & Greed Index, another sentiment measure, was recently near "Fear" after earlier approaching "Extreme Fear" levels.

In the short term, the direction of stocks will largely be driven by sentiment and what's going on in the Middle East until the next Federal Reserve meeting—due next week—when investors get more clarity on the central bank's policy stance under Chair Kevin Warsh, according to Daniela Hathorn, senior market analyst at Capital.com. News that President Donald Trump said he'd cancelled planed strikes against Iran aided stocks Thursday.

"While investors appear comfortable treating the latest inflation data as manageable, the broader picture remains challenging," she said in an overnight note, adding that markets might be "underestimating" the risk of higher rate expectations in the coming months.

The good news, Hathorn said, is that the "buy-the-dip mentality" has helped prevent "a deeper correction taking hold."

This article has been updated since it was first published to reflect the close of trading.