Valuation Distortions Everywhere
This month: Markets are chasing valuation mirages: Musk wants Tesla holders funding his AI at fantasy multiples, Wall Street keeps ignoring billion-dollar brand equity, and CEOs freeze CapEx amid tariff chaos.
The Danger of Drifting
Elon Musk’s latest magic trick: ask Tesla shareholders to bankroll his side‑hustle, xAI, at a price that makes WeWork look quaint. The proposed raise prices xAI at $170‑$200B—or about 200x forward sales—while the median AI player changes hands near 30x.
Why the stretch? Musk can’t dump more of his own Tesla stock without spooking the markets, so he floats a “strategic” investment—never mind that Tesla’s core auto business is down double‑digits and free cash flow is thinning. By funneling corporate cash into a privately held company that he controls, the CEO dodges dilution, jacks up his own personal stake, and asks public investors to bear the risk.
Ordinarily, there are guardrails in place to stop this. The corporate opportunity doctrine states that officers must offer attractive deals to their company first. But Tesla’s reincorporation in Texas has preempted that; anyone who owns less than 3% of the company can’t bring a suit on these grounds. Translation: virtually no institution other than Musk himself clears that hurdle.
So we’re left with a board vote that pits fiduciary duty against founder idolatry. If the motion passes, expect a new playbook for celebrity CEOs: mark up a private asset, then lean on public shareholders to crystallize your gain. If it fails, brace for another threat of “I’ll build it elsewhere unless you pay me.”
Brand: Wall St.’s Blind Spot Worth Billions
Earlier this year, Interbrand published a report, "How Brand Impacts Share Price," where they audited five years of P/E ratios across the S&P 500 and found that 67% of companies were mispriced relative to their brand strength. Analysts rank brand as their #2 valuation driver, but only 10% claim deep understanding—a knowledge gap big enough to drive a truck through.
The fix for IROs isn’t mysterious:
Model brand value like any other asset—financials, strength, earnings power.
Survey the Street. Learn how investors currently read (or misread) you.
Audit comms. If investor decks ignore brand strategy, expect mis‑valuation.
Refresh narrative and loop data back quarterly.
Do it right and you compress volatility, lift multiples, and turn “soft” equity into hard currency. Ignore it and keep whining about the discount.
If the hidden value of brand equity and the optionality it creates sparks your interest, dive deeper into my latest post on Nike and the Mispriced Magic of the Swoosh.
From the Field: Tariff Fog, CapEx Freeze
The slowdown is no longer anecdotal; it’s showing up in the data. The Business Roundtable’s Q2 CEO Economic Outlook just clocked a 15‑point slide in capital‑investment plans, taking the capex sub‑index to 65—its steepest quarter‑over‑quarter drop since the pandemic years.
Hard numbers echo the sentiment. April core capital‑goods orders (the Commerce Department’s proxy for future equipment spending) fell 1.3%, the sharpest plunge in six months and the first back‑to‑back monthly reversal of the cycle.
CEOs tell me they’re shelving multi‑year builds rather than pricing a 50% swing in copper or a 35% blanket levy on Canada. Until trade policy stops shifting with every Truth Social tantrum, expect “deferred” to remain default in boardrooms.
Signal vs. Noise
Margin Mirage. Musk wants 200x for xAI while sector norms sit near 30x. Founder‑friendly markup hiding in plain sight.
Brand Blind Spot. IROs think their brand story is clear—investors overwhelmingly disagree. Close that gap, and multiples expand.
Carbon‑Frozen CapEx. CEOs are shelving multi‑year builds until trade fog clears. Expect “deferred” to dominate this earnings season.
One Last Thing
Markets forgive founders for almost anything—until they smell desperation. Musk’s $200 billion ask reeks of just that. I expect the founder-premium narrative to crack, loudly, and soon.
If this letter resonated with you—or you just want to keep our conversation going—I’d love to hear from you.
Until next month,
—
Zachary Graeve
beacons.ai/zacharygraeve
