By Barry Eichengreen*
Questions about the financial implications of radical new technologies—AI, space travel, and their associated infrastructures, to pick a few—have led to a veritable analogy-fest. Is this a replay of the railway boom of the 1870s, which came to grief in the 1880s? A repeat of the electrification boom of the 1890s, which unfolded smoothly but took three decades to play out?
No analogy is perfect. Nor should we seek one: the most valuable insights often derive from how precedents differ from the case being considered as much as from their similarities.
In that spirit, an especially apposite case is Nippon Telegraph and Telephone’s February 1987 initial public offering. In terms of its financial footprint, NTT’s IPO put SpaceX’s in the shade, amounting to 7–10% of then-existing Japanese stock-market capitalisation (depending on what’s counted), compared to SpaceX’s 2.5% of current US stock-market capitalisation. Take that, Elon Musk! Even if one adds the forthcoming OpenAI and Anthropic IPOs, the footprint of NTT’s late-1980s offering remains overwhelmingly large.
Yet Japanese stock markets digested NTT’s IPO with nary a hiccup. Not only were initial price expectations met, but NTT shares rose strongly from there, doubling in the first two months of trading.
One reason for investors’ enthusiasm was that NTT was the dominant company in the Japanese telecom sector. It symbolised the country’s transformation from a manufacturing powerhouse to an information society. It effectively monopolised telecom networks, data transmission, and digital connectivity. It was seen not just as a source of monopoly rents but as a bet on information technology generally. Even if fax machines and dial-up modems fell out of fashion, the company was well positioned to capitalise on what came next.
There was also pressure for institutional investors to load up on NTT shares. Just as managers of index funds today are compelled to buy SpaceX when the company is added to indices they are mandated to track, Japanese banks and insurance companies were obliged to buy NTT shares or be seen as taking a bet against Japan’s information society. And, given the weight of NTT in the Nikkei, that meant betting against the Japanese stock market and the Japanese economy generally. In an environment where managers were punished for conspicuous losses and only mildly rewarded for successful bets, contrarian positions were taken at personal and institutional risk.
NTT shares benefited from a supportive macroeconomic and financial environment as well. Economic growth had slowed from the miracle period in the third quarter of the 20th century, but Japan was still regarded as a formidable competitor. It was less than a decade since the Harvard sociologist Ezra Vogel’s bestseller Japan as Number One, a title not yet regarded with irony. The Nikkei Stock Average rose by 14% in 1985 and an astounding 43% in 1986. The Bank of Japan halved its policy rate from 5% in early 1984 to just 2.5% in early 1987, leading investors to seek alternatives to Japanese government bonds.
We now know that investor enthusiasm was overwrought. The Bank of Japan began raising interest rates in May 1989, in an effort to lean against financial excesses. The Nikkei peaked in December, and it was all downhill from there. Notably, however, NTT shares had already peaked in April 1987. By April 1988 they were down by 25%, and by April 1989 they had fallen by another 37%. In the 1990s, NTT shares hovered at around one-third to one-half of their bubble-era valuation.
The irony was that NTT performed well over this period. In the 1990s, it continued to expand into new forms of telecommunications and data services. But its business model was more capital-intensive than investors, envisaging disembodied digital technologies, had assumed.
Over time, moreover, the company faced new competition. Mobile telephony lowered entry barriers by eliminating the need for telecom firms to own the entire “digital stack” (physical as well as technological infrastructure). Thus, positive productivity performance did not automatically deliver super-profitability. And NTT shares had been priced for perfection.
There are several notable implications for today. First, a favourable macroeconomic and financial backdrop can support investor sentiment for a time, but that context can change abruptly—along with the sentiment. This observation is timely today, given how the Fed is poised to raise interest rates.
Second, institutional factors, such as the need for fund managers to track equity indexes, can reinforce market momentum. But momentum runs in both directions: it can perpetuate share-price increases but also reinforce share-price declines once the latter are underway.
Third, technological and market dominance is not forever. As technology continues to evolve, a first mover can experience competition that squeezes profits and investor returns in a manner incompatible with rich share valuations.
Again, no analogy is perfect. But this does not weaken their value as warning signs.
*Barry Eichengreen, Professor of Economics at the University of California, Berkeley, is the author, most recently, of In Defense of Public Debt (Oxford University Press, 2021). Project Syndicate, (c) 2026, published here with permission.
8 Comments
My ignorant take is that the SpaceX ipo is just so much fluff compared to the then real NTT investment opportunity.
Spacex might keep putting satelites up for a while, but the EROEI of further space distance versus energy input (liftoff/Mars/liftoff back, payload vs fuel. equipment needed there)
Basically a Ponzi on top of a Ponzi. because GROWTH had to be kept going - or at least, a smoke-and-mirrors version of it did.
Seems to me that valuations of these companies could be justified at some time down the road but much of it ends up being at the expense of other companies rather than organic growth. Take Afterpay as an example. Common sense would have told you every dollar the collective share price of the Afterpay industry went up should have meant a dollar down in the credit card equity value as all it was doing was offering an alternative delayed payment option. That and a little bit of moving further out the credit curve, however that shouldn't have added much value ultimately. But it just fired the valuations higher without considering where the revenues were gonna come from. Now think about Anthropic: their Mythos system is so advanced they needed to send it out to large institutions and govt departments to fix immediate holes in their security. So the bigger companies are protected but what about all the smaller ones who have services like online payment etc? What this will mean is that everyone will eventually have to come under their "security" cloud in order to be fully secure, meaning they slowly ( or possibly quickly) get monopoly over global payment systems or something similar. That's where the value comes from if you ask me. Google search flicked a switch and decimated the global advertisement placement industry overnight. Maybe SpaceX does this with communications.....
So the bigger companies are protected but what about all the smaller ones who have services like online payment etc?
This should be something everyone should be considering. If AI can find flaws in digital security so easily such as here then feasibly, any website you have ever put in your card details, personal information (delivery address, date of birth etc) or used a password used for other sites, this information could be hacked and retrieved very easily, and both sold en mass to people with nefarious intentions, or used against you.
What are the implications of this? Well, how safe do you think your money is in the bank, and if so, for how long?
The NTT Group has over 1,000 related (group) companies worldwide. It has has three major listed companies: NTT Inc. (the holding company), NTT DOCOMO, Inc., and NTT DATA Group Corporation. It is a a clear leader in several fields, especially telecom networks, data centers, and certain AI/optical technologies, both in Japan and increasingly in Asia/global ICT.
The Japanese govt was always a large shareholder of NTT from its inception and continually selling its shares over time.
While it might be a great organization, it never was a moonshot stock to own.
Costco traded around USD4-6 in 1987 when NTT debuted.
Today the stock trades at USD951 implying about a 17,900% nominal price gain (before dividends).
A far better investment than NTT and probably SpaceX.
To much printed money chasing ever larger pipe dreams. Some will payout, many more will not. Lots of ticket clippers talking up this and that and pushing ever greater leveraged plays where they make a over weighted fee but you take all the risk. Not unlike the banks creaming a certian popular leveraged gamble in NZ.
Is it smart, is it gambling...?
THE $2.1 TRILLION DOLLAR QUESTION - WILL THIS ONE FLY?
Perhaps a more balanced article would have included some real world realities such as evaluating the NTT and SpaceX companies by their price per share, relative to total sales, to illustrate just how monumental the premium is that investors are paying for what essentially is massive assumed future growth.
SpaceX's Hyper-Inflation: Trading at 111x to 116x sales, puts SpaceX in a completely unprecedented valuation stratosphere. For context, the average S&P 500 company trades at roughly 3.5x sales. Even hyper-growth AI hardware giants typically max out in the 40x–50x sales range.
NTT was an established telecom monopoly with a massive, guaranteed consumer revenue stream. While speculative fervor in Japan pushed its stock price to a dizzying 200x earnings multiplier, it generated far too much absolute revenue for its sales multiplier to ever hit triple digits
The Growth Leap of Faith: Paying over 111x sales for SpaceX means investors are pricing in an incredible 91% compound annual growth rate (CAGR) through 2030 to eventually bring its multiples down to Earth.
On a revenue-generation basis, SpaceX is vastly more expensive than NTT ever was. NTT's bubble was driven by a lack of net earnings relative to a massive market cap; SpaceX’s valuation requires an entirely speculative bet on a multi-trillion dollar future AI and satellite data economy that does not yet exist.
Trailing Price-to-sales Ratio tell a story too...
SpaceX 108.8x
Nvidia 18.6x
Microsoft 9.1x
IOW's investors are paying almost 600% more per dollar of revenue than they do for Nvidia, which is the poster child of the AI boom. Also, Microsoft generates more revenue in a single month than SpaceX in an entire year. Go figure, when the stock market values SpaceX sits at a mind-boggling $2.1 trillion, and Microsoft at $2.9 trillion.
And Trailing net income numbers are just as horrifying...
SpaceX -$9.4 bilion (loss)
Nvidia +$60 billion
Microsoft +$90 billion
IMO, SpaceX trades like an uncapped call option on the future outer-space economy. For its 108x sales multiple to scale down to Nvidia's current 18x multiple, SpaceX would need to instantly grow its annual revenue from $19.3 billion to over $116 billion without adding a single dollar to its current market cap.
I wonder if pigs plastered in lipstick might learn to fly too?
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