An Ode to Restraint: Lessons from the Tim Cook Legacy

    Through time, we have glorified conquerors and empire builders in politics, civic life and business, from Alexander the Great and Genghis Khan to the tech titans of today. That is no surprise, since these individuals have oversized personas and often change the course of history, but it is also true that this glorification of empire building has shortcomings. The first is the deification of these heroes comes with whitewashing of the dark sides and the costs of empire building. The second is that we discount and undervalue those who make contributions to societal or business advances, but do so quietly and with little fanfare. It is in this context that I was drawn to the story of Tim Cook stepping down as Apple CEO, after a tenure of fifteen years atop a company that has been among the top market cap companies in the world for much of that period. While Steve Jobs, his predecessor as CEO at Apple, has now been deified in business circles, as an unparalleled visionary and business builder, and deservedly so, I think that Tim Cook, in many ways, has played just as significant a role in molding the company into its current day standing, with far less recognition.

Apple's CEOs: From Scott to Jobs to Cook!

    Unfair though this may seem, the Tim Cook story at Apple has to start with Steve Jobs. Jobs co-founded the company in 1976, with Steve Wozniak, and while the company went through a series of CEOs in the next two decades, Jobs was the face of the company in its early years. While it is easy, with the benefit of hindsight, to view these as good years for the company, those early years reflected both Job's strengths and weaknesses. His vision and force of personality gave rise to the personal computer in its current form, as a tool for everyone to use, not just tech geeks, and as someone who bought his first Mac (the 128K without a hard drive) in 1984, and has stayed a Mac user since, I am grateful. That said, the dark side of Jobs, manifested in impatience with underlings and an obstinate belief that he knew what customers needed better than they did, led to the Lisa, the only Mac I regretted buying almost immediately after my purchase, and a loss of business markets to Microsoft. Those failures led Apple to the brink of failure, and to Jobs being cast out of the company by its board in 1985, though the CEOs that followed had neither the strategic vision nor the business-building capacity to rescue the company.

    In 1997, Apple looked like it was a company heading into oblivion, as Windows became the dominant operating system for personal computers, and it seemed like Apple had lost its purpose. The August 1997 return of Steve Jobs,, who had used his years in the wilderness to build Pixar, a company that revolutionized animated movie making, is now the stuff of legend, as he rebuilt Apple in the ensuing years into a powerhouse, around the iPod, the iPad and most of all the iPhone. While there are books and movies chronicling the Steve Jobs success story, it is worth asking what the difference was between the first iteration of Steve Jobs at Apple (from founding to leaving in 1985), where Apple lost ground to Microsoft, and the second iteration of Steve Jobs (from his return in late 1997 until his resignation in 2011). The first was that he was older, and to the extent that with age comes some wisdom, it helped, but it is unlikely to have been the change maker. The second was that in his period away from Apple, Jobs created and built up other companies, with Pixar being the biggest, where he learned to deal with people better and perhaps compromise a bit more than he used to. The third was that he benefited from the presence of Tim Cook, first as an executive in Apple sales and operations, and more importantly, as chief operating officer (COO) for Apple, starting in 2005. If Steve's skill was vision, where he showcased Apple's next "big innovation" at meetings in his trademark black turtleneck, Cook's skill was building manufacturing hubs and supply chains to convert the vision to products. That separation of vision from business building created the Apple juggernaut in the first decade of this century. While that division of labor clearly was in the company's best interests, Jobs deserves credit for being willing to set his ego aside and delegate the powers to make it happen.

    Tim Cook has been CEO for fifteen years, and when he retires on September 1, 2026, he will have been the longest serving CEO at Apple. It cannot have been easy, especially in the early years, as the comparisons to Steve Jobs were front and center, and there was pressure on him to continue in the same path. To Cook's credit, he never tried to be Jobs, and he created a very different template for himself, one that fit him and the company well, and served as a testimonial to his self assurance. In one of my talks about a decade ago about Apple, I described Cook, perhaps harshly, as a man without a visionary bone in his body, but one who would make sure that the trains ran on time (or the iPhones were delivered as promised), and I think that he has used that strength to good effect during his years as CEO of the company.

Apple's Finances in the Twenty First Century: The Steve Jobs and Tim Cook Years!

    Steve Jobs handed over a company to Tim Cook in 2011, that was extraordinarily profitable, and at the time of his leaving, already the largest market cap company in the world. While that fact leads some to discount what Cook has done at Apple since, I think it is worth going back in history and looking at corporate handoffs of great companies, and how often they become tangled messes, as new CEOs overreach and overpromise. 

    The place to begin our comparison of the Jobs and Cook tenures is by charting Apple's market capitalization, with the delineation into the Jobs years (1998-2011) and the Cook years (2012-2026):

Looking across the aggregated years across both CEOs, it has been an extraordinary time. Apple began the Jobs tenure as CEO with a market cap of $1.68 billion, and by the end of 2025, its market cap had risen to over $4 trillion, and its performance burnishes the reputations of both Jobs and Cook. Jobs provided the foundational boost for the company and the innovations he presided over delivered a compounded annual price appreciation of 47.19% between 1997 and 2011, a period when US equities were struggling and Apple reached the top of the market cap table in 2011. With Tim Cook at the helm, Apple added an astounding $3.64 trillion in market cap, but a strong equity market provided strong tailwinds, and the company's annual returns were more modest.  On a percentage return basis, the Jobs years were better, but in my view, the fact that the annual returns in the Cook years were just as impressive, because they had to be earned on a much larger firm. 

    The reasons for Apple's sustained increase in market capitalization were simple - solid revenue growth and a profit machine that delivered high margins, even as the company scaled up:

As with the market capitalization comparisons, this chart yields metrics that are favorable to both Jobs and Cook. Under Jobs, the company scaled up its revenues significantly, with a compounded annual revenue growth rate of 23.67% between 1997 and 2011, and just as significantly, went from posting subpar margins and a net loss in 1997 to becoming one of the most profitable tech companies in the world, Under Cook, revenue growth rates came down (to a compounded annual average of 8.52% between 2012 and 2025), but on a much larger scale, and the company preserved and grew its profit margins.

    There was one corporate finance dimension on which Cook deviated from Jobs, and that was on cash return or dividend policy. In the chart below, I look at the cash returned to shareholders by Apple during the tenures of the two CEOs:

During Job's tenure at Apple, the company paid no dividends and initiated only modest cash buybacks, mostly to cover stock-based compensations. With Tim Cook as CEO, Apple was one of the greatest corporate cash success stories of all time, initiating dividends in 2012 and increasing them over time, and supplementing those dividends with cash buybacks that, in the aggregate, were the largest in corporate history. In sum, the company has bought back almost $800 billion between 2012 and 2025, and the most astonishing feature was that, while returning all of this cash, the company also accumulated one of the largest corporate cash balances in history.

    To the question of how Apple was able to return this much cash, increase its cash balance and still grow itself, the answers are three fold. The first is that the iPhone, perhaps the most valuable single product in business history, continued to deliver for the company, with modest reinvestment needed on its upgrades. 

While much of the credit for the iPhone is still given to Steve Jobs, and rightly so for fostering the innovation, credit is also due to Cook, who has taken the franchise handed to him, and grown it on steroids. The second is that the company borrowed $17 billion in 2013, a Cook departure from a Jobs practice of avoiding debt, and it has added to that debt load over time, though it remains a small slice of overall value:

While much is made of Apple's debt foray, it is worth recognizing that Apple is still a very lightly indebted company on any debt metric, and that if you net the company's considerable cash balance out against its total debt, its net debt has always been negative (cash exceeds debt). In fact, Apple's use of debt is so light that the only rationale for its existence is creating a presence in the bond market, just in case it needs to use it more in the future. The third feature is that the company has been cautious in its forays into new products and markets, especially outside its domain, and this shows  up in two data series.

• The first is that while Apple has acquired more than a hundred companies, almost all of them are small, private technology companies with small price tags, with the intent being bringing their products and services into the Apple ecosystem after the acquisition. In fact, its largest acquisitions during this century are so small that they represent petty cash, relative to its cash balance as a company. Beats, for instance, which was one of Apple's biggest acquisitions cost the company about $3 billion, a number dwarfed by its cash balance that year, which was more than $100 billion.
• The second is that in the last five years, as big tech companies have gone on an AI capital expenditure binge, Apple has been the outlier, holding back on its AI investments, and this can be seen in the chart below, where I compare Apple's capital expenditures to those of the rest of the Mag Seven:
  
  
  As the rest of the group has ramped up its capital investments, with much of it going into AI, Apple has held back, and its share of the total cap ex at the companies has fallen from 8.04% to 3.02% over the period.

In sum, looking at the changes at Apple over the last fifteen years, the company has changed from the growth engine, driven by disruptions, in the Jobs years to a mature, cash-returning and more cautious company under Cook. I have posted more about Apple than about any other company in the world (and I have a sampling of some of those posts at the end of this post) and have been a shareholder in the company for significant portions of both the Jobs and Cook tenures. I have not always agreed with either man, on choices that they have made at the company, but I respected both of them enough to view them as good stewards of my investment. In a world full of CEOs who are quick to herd to what the consensus view is, I admire both men for their willingness to stand on their beliefs.

Vision or Restraint: A Life Cycle Perspective

    If you were to create a profile of Tim Cook, the manager, based upon the choices that he has made at Apple during his tenure as CEO, two very divergent views emerge. To his admirers, his actions on some fronts (initiating dividends, massive stock buybacks, borrowing money) and inaction on other fronts (no big acquisitions, diffidence on AI investments), represent an exercise in discipline and restraint,  preserving the company's crown jewel (the iPhone) and fending off the bankers and consultants, with their false promises.  To his critics, and there are quite a few, Cook's caution has cost Apple its disruptor status, when it could have used its ample cash reserves to buy its way or invest in into almost every new business that has bloomed in the last fifteen years. In fact, they point to chances that Apple has had to buy some of the biggest stars in the market, from Tesla and Netflix more than a decade ago to Anthropic, Mistral and Perplexity in more recent years. 

        It is impossible to argue that one side is right and the other side wrong, but it is undeniable that both pathways (the restrained pathway that Apple adopted and the more aggressive pathway that it could have taken) include trade offs. It is true that Apple's restraint has led it to miss out on some of the biggest trends in technology over the last decade, but it has also avoided the overpayment that is so common with high profile acquisitions of big companies. The argument that Apple would be worth a lot more today if it had bought Netflix or Tesla a decade ago falls flat for two reasons. The first is the selection bias in picking two companies that, in hindsight, have emerged as winners, when in fact there were at least a dozen other worse-performing companies that were also on Apple's radar. The second is the presumption that companies like Tesla or Netflix would have been just as successful, owned by Apple, as they were as stand alone enterprises. The clash of corporate cultures that would have ensued if Apple had bought either Tesla, a company that reinvents its business narrative every few hours, or Netflix, an entity that makes content in quantity with the hope that some it sticks, would have been epic, with the risk that both Apple and its acquired target would have gone down in flames.

    More generally, though, the question of whether you want a visionary or a disciplined business builder at the top of a firm is not one that has an easy answer, since it depends on the firm in question. In my work on corporate life cycles, I focus on the management skills that are needed most in a company, based upon where it is the life cycle, and that may help address the choice between vision and restraint:

With young companies, vision dominates, as managers work to sway investors, employees and nascent customers that their product or service will find a market. As the vision takes hold, converting it into commercial products and services requires trading off some portions of vision for pragmatism, in the interest of getting the business going. As products and services find demand among customers, business building becomes a key difference-maker, with the grunt work of marketing, production facilities and supply chains coming into play. Assuming that you have made it through these three stages, the trade offs of scaling up come into focus, and as you hit market limits, success depends on being opportunistic in finding new products and markets, but only if they exist. In corporate middle age, pathways to easy growth, especially at scale, become difficult to find, and to the extent that value comes from moats and core products, playing defense against competitors takes priority. Finally, in decline, a phase that no company ever wants to enter, but is inevitable at some point, you need to be willing to shrink a firm, shutting down businesses that no longer deliver value and selling other assets to high bidders.

    Given these very divergent management functions, it should come as no surprise that there is no prototype for the perfect CEO, McKinsey and Harvard Business School blueprints notwithstanding. Viewed in this framework, I would argue that Apple has been lucky with its last two CEOs, both in terms of persona and in terms of sequence. When Steve Jobs rejoined Apple in 1997, the company had hit rock bottom, and with little to offer in liquidation, his vision allowed for a reincarnation, with disruptions leading the way, and as we noted earlier in this post, having a strong chief operating officer in Tim Cook made the difference. The Apple that Tim Cook inherited, when he became CEO, was a very different entity, already the world's largest market cap company, with a superlative franchise in the iPhone. In corporate life cycle terms, Apple was a mature growth company, and what Cook lacked in opportunism , he made up for by defending Apple's biggest product line(iPhone) and augmenting value with increments like the app store and devices. That said, while each of these men created value for shareholders, I don't think that either would be regarded as highly, if you swapped their tenures in terms of timing. I don't think Tim Cook would have been able to bring Apple from its near-demise to being on top of the corporate universe, if he had become CEO in 1997, and I think Steve Jobs would have been ill-suited to the Apple that was in existence in 2011. 

Aging, Management Mismatches and Corporate Governance

    In a post from a few years ago, I used the connection between CEO type and corporate lifecycle to examine why management mismatches occur at firms, and the consequences of that mismatch. Specifically, there are three confounding factors that can make matching up CEO to company, given where it is in the life cycle, complicated:

1. Like humans, companies age, but unlike humans, the rates at which different companies go through the life cycle can be wildly different. An infrastructure or manufacturing company can take decades to become operational, followed by extended phases of growth and maturity, before going into decline. In contrast, a tech company can have explosive growth early in its life, spend a brief period enjoying the fruits of its success as a mature company before declining precipitously. As a consequence, managers and investors who use chronological age as their corporate aging metric can misjudge where they are on the life cycle.
2. While aging is inevitable for both humans and businesses, some mature or even declining businesses can find pathways, either through happenstance or management choices, to rediscover their youth. These businesses become the stuff of legend, and they are the subjects of books and business school case studies, and their CEOs are elevated to management deities. 
3. The narratives built around companies that reincarnate and the CEOs atop these companies also feed into management incentives and behavior. The story of Steve Jobs at Apple has been told and retold, but it is worth remembering that for every story of reincarnation, there are a hundred stories you can tell about other CEOs who tried to follow the Apple playbook, spending billions on reinventing their companies, with little to show in terms of payoffs. (See my posts on Marissa Mayer at Yahoo! and on Blackberry.) In essence, the glorification of CEOs who bet big on turnarounds at mature or declining companies, and win, sets up CEOs facing similar circumstances to behave like riverboat gamblers, when making management choices at their firms. After all, if their bets pay off, they join the legend crowd, and if they do not, they contend that they did their best, and that circumstances conspired to bring them down.

The bottom line is that there are a number of ways in which you can end up with CEO mismatches - a CEO who cannot adapt to the changing demands of an aging business, a hiring mistake or even changes in the macro environment, and when those mismatches occur, is is inevitable that there will be friction between the CEO and shareholders. In a sense, almost all corporate governance challenges can be traced back to management mismatches, and the power (or the absence of it) that shareholders have to fix those mismatches:

While Tim Cook's time as CEO of Apple is now seen through rose-colored lens, it is worth remembering that Apple was targeted repeated early in his tenure by activist investors. While some of the changes that these activists were pushing for were warranted, some were not, and Cook deserves credit for not capitulating. Carl Icahn, for instance, wanted Apple to increase its debt substantially, borrowing hundreds of billions, but I took issue with his argument that Apple could borrow this money at the low rates that he was extrapolating. A couple of years later, David Einhorn made his play, arguing that Apple should issue preferred shares with a 4% dividend yield, and I noted that preferred stock could bring with it all of the cashflow commitments of debt, with none of the tax advantages. I have long argued that the best defense a management has against activist investors is delivering superior performance and returns, and Tim Cook delivered on both dimensions, and faced little more than sniping from disgruntled investors in his later years as CEO. In the last four years, the criticism has come primarily from analysts who fault his caution, and argue that Apple risks falling behind its more aggressive competitors in the AI race, but here again, Cook has stood his ground.

Management Transitions, Past and Present - The Mag Seven

    I don't envy John Ternus, who is Cook's heir apparent, because he is following two CEOs who were immensely successful, albeit in different ways. If there are lessons he can learn from both Jobs and Cook, they include the following:

• Find your own path: There will be pressure from some investors to be just like Jobs, and go for big disruptions, or from others to imitate Tim Cook, and leave Apple as a cash machine. While it may take time, Ternus has to find his own path as CEO, based on not only what he brings to the table, given his background in computer hardware, but on what Apple's strengths are as a company in 2026 and the markets it is facing right now.
• Adapt to the company you are managing: Just as the Apple that Jobs took over in 1997 was very different from the Apple that he handed over to Cook in 2011, the company that Ternus takes over is different from the ones handed over in either of the prior iterations. When you are at the helm of one of the largest market cap companies in the world, you have to start with the recognition that any new product or service that you introduce will have to be huge to make a dent in the operating metrics (revenues and profits) or market capitalization. In addition, the franchise that holds up the company's cash machine is the iPhone, and Ternus cannot afford to take his eyes of that prize. 
• Keep the feedback loop open: When you are a company worth trillions, with legions of shareholders, and hundreds of analysts, you will have advice meted to you constantly on what you should or should not do. Much of that advice will be bad, and should be dismissed, but some of it is worth listening to and perhaps converted into policy. In addition, as CEO, I hope that Ternus views the market price as a crowd judgment on Apple's actions rather than the product of speculation, and accepts that while that judgment can be wrong, it should be taken seriously. 

I wish Mr. Ternus the best, for purely selfish reasons. As a Mac and Apple device user, I want the company to prosper and continue to make products that I can continue to use on a daily basis, and as a shareholder, I want my investment to do well. 

    The attention, in this post has been on the management transition at Apple, but management transitions are part and parcel of every company, with the changes sometimes forced on the company and sometimes voluntary. Expanding the discussion of management to the other companies in the Mag Seven can provide us with an opportunity to examine management transitions that have either already happened or that will happen in the future, and the ensuing frictions:

• At Microsoft, the only company in this group that traces its vintage back to Apple, there have been two CEO transitions, from Bill Gates to Steve Ballmer in 2000, and from Ballmer to Satya Nadella in 2014. While Gates built Office and Windows into cash cows, and Ballmer preserved them, Nadella created his own pathway to reincarnation by building up a cloud business that is now the dominant source of revenues for the company. By partnering early with OpenAI on LLMs, and investing massively in data centers, Nadella is now making a bet that AI can provide a further boost to the company's operations, perhaps setting the stage for a second rebirth.
• Amazon has seen a management transition, where a legendary founder (Bezos) left the firm in 2021, and his successor (Andy Jassy) has taken the reins, with remarkably little fanfare. Like Nadella, though, Jassy is betting big on AI being a growth and value driver, and the success or failure of that bet will largely determine how his stint as CEO gets judged.
• Alphabet offers a case study of a company that tried to split the difference, by separating its cash cow (Google advertising) from its other businesses, naming Sundar Pichai as the CEO for Google, while remaining atop the other Google businesses (the bets in Alphabet). That experiment has struggled to deliver, as the other businesses remained earth-bound and in 2019, and Pichai took over as CEO of Alphabet as well. Over its lifetime, Alphabet has been immensely successful in coming up with products and services that catch public attention, whether it be its development of the Android operating system or its work on Waymo or Gemini, but it has struggled to convert those successes into revenues and operating profits.
• In three of the companies (Tesla, Meta and Nvidia), founders remain CEOs, though they bring very different perspectives and personalities into their roles. As I noted in my last post on SpaceX, Musk has veered between genius and eccentricity in his stewardship, but shareholders at Tesla have largely benefited from the rollercoaster ride. At Meta, Zuckerberg has been a shrewd businessperson in his management of his social media holdings, with savvy acquisitions of Instagram and Whatsapp boosting his ad-driven ecosystem, but he has also been headstrong in his pursuit of ventures that he feels are the "next big thing".  His expensive failed bet on the Metaverse led some investors to question his governance, and many of these investors worry that his bet on AI will play out similarly. Finally, on Nvidia, the company's soaring market capitalization and huge success with AI chips has pushed Jensen Huang into the spotlight, but less than a decade ago, there were questions about his management as well.

The fact that all six of these companies have invested heavily in AI is a lead-in to what could be the key test for management at all of them. If the AI investments pay off and deliver value, Nadella will cement his legend status, Jassy will have created his own legacy at Amazon, the Alphabet experiment will finally pay off, and the founder-run companies will have more room to run. If the AI investments fail, though, Nadella's reincarnation reputation will take a hit and Jassy's position atop Amazon will be at-risk. The AI failure will also raise doubts about Alphabet's capacity to grow beyond advertising and the rumblings about Zuckerberg's big bets will get louder, but at these two companies, it is unclear what investors, no matter how large their holdings are, can do, since they have acquiesced to a voting share structure at these two companies that has reduced them to bystander status. At Alphabet, Brin and Page control 51% of the voting rights, with less than 10% ownership, and at Meta, Zuckerberg controls 57% of the voting rights, with about 13% of share ownership.

  

An Ode to Restraint

    While there are many who compare to Tim Cook to Steve Jobs and find him wanting on vision and flair, I am grateful, as an investor in Apple, for the restraint and discipline that he brought to the job. That gratitude will stay intact even if Apple's caution on AI turns out to be a mistake, since the restraint and rectitude that Cook brought to his job are management qualities that significantly undervalued. I don't teach from or write cases, but I would love to see more business school cases about CEOs like Cook who are not easily swayed by the temptation of more growth and ego-driven acquisitions. I loved the Steve Jobs movie, but I don't expect to see a Tim Cook movie anytime soon, and while that is understandable, it also explains why we will continue to have too many CEOs at companies viewing themselves as saviors, gambling shareholder money on turnarounds and rescues, when the better pathway would be acceptance and shrinkage. I believe that investors lose more money from companies trying to do too much rather than from them doing too little, and from overreaching than from underachieving.

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My posts on Apple

1. Apple: Thoughts on Bias, Value, Excess Cash & Dividends (March 1, 2012)
2. Apple: Know when to hold 'em, know when to fold 'em (April 3, 2012)
3. Emotions, Intrinsic value and Dividend Clienteles: The Apple postscript (April 6, 2012)
4. Apple's Crown Jewel: Valuing the iPhone Franchise (August 29, 2012)
5. The Year in Review: Apple's Universe (December 2012)
6. Are you a value investor? Take the Apple Test! (January 2013)
7. Back to Apple: Thoughts on value, price and the confidence gap (February 7, 2013)
8. Financial Alchemy: David Einhorn's value play for Apple (February 8, 2013)
9. Apple: News, Noise and Value (April 30, 2013)
10. Love the company! Love the product! Love the stock! (September 9, 2013)
11. Watch the Gap: Apple's Long and Twisted Journey (April 2014)
12. The Race to the Top: The Duel between Alphabet and Apple (February 2016)
13. Icahn exits, Buffett enters: Whither Apple (June 2016)
14. Apple: The Greatest Cash Machine in History (February 2017)
15. Investor Whiplash: Looking for Closure with Apple and Alphabet (December 2018)

My book on the corporate life cycle

1. The Corporate Life Cycle

To a Trillion(s) Dollars and beyond: A SpaceX IPO Odyssey!

    In 2001, A Space Odyssey, a movie that was well ahead of its time when it was released in 1968, Hal (the computer) famously responded to questions about his reliability with “it (mstakes) can only be attributable to human error”. I was reminded of my fallibility repeatedly as I tried to value SpaceX ahead of its initial public offering, a market debut that is shaping up as a barn-burner for three reasons. The first is that in a market where there are many young companies all trying to claim to be futuristic in their offerings, SpaceX clearly stands out as the real thing, with rockets, satellites and AI all residing under its corporate umbrella. The second is that its founder (Elon Musk) is the richest person in the world, has upended one legacy business (autos), bought a social media company as a soapbox and made his presence felt  on the the political stage. Love him or hate him, Musk is definitely not boring, and his capacity to spin business narratives that seem outlandish at first hearing. but become conventional wisdom later, clearly adds to the allure of SpaceX. Third, if the private market pricing feeds into the public offering, SpaceX could very well become the most valuable IPO of all time, joining the rarefied list of trillion-dollar companies, on listing. That said, I may be getting a little ahead of the game here, because SpaceX has not filed a public prospectus yet, and little is known about its financials other that drabs of information that have been leaked to the press. I will forge on, nevertheless, with the stipulation that this is a first iteration, and that I will revisit it, as more information comes out about the firm’s financial standing and its IPO plans.

The History of SpaceX

    You may be surprised to hear that SpaceX is older than Tesla, at least in terms of chronological age, founded on March 14, 2002, in El Segundo, California. At its founding, Musk stated its goals as reducing the costs of space transportation and travel to Mars, but was viewed as having little chance of success by the space establishment, composed then of government agencies (NASA) and a few defense firms (Boeing and Northrop Grumman). SpaceX applied the lessons of modular engineering from the software business and it launched Falcon 1, its first space launch vehicle in September 2008; that successful launch led to a NASA contract for $1.6 billion, and rescued the company from near bankruptcy. In subsequent years, SpaceX developed Falcon 9, a reusable and heavier vehicle, with the Dragon Spacecraft unit, and became the first commercial entity to deliver cargo to the International Space Station. In 2013, SpaceX launched its first mission for a private customer, and quickly secured a dominant market share of commercial launch contract market. In recent years, SpaceX has invested in an even more ambitious version (in terms of size and power) of reusable spacecraft with Starship, and while its first launch in 2023 exploded in space, the company is clearly moving towards making it functional.

    Along the way, the company added to its business mix, first with The Boring Company, a  company that specialized in building tunnels that could be used to transport people, in 2017, before spinning it off as a separate entity. More significantly, in 2019, the company launched sixty Starlink satellites, with the end game of offering satellite-based internet  services to customers, especially in areas where conventional internet service was limited. That endeavor has now grown to include thousands of satellites and had more than ten million active subscribers spread across the world, at the end of 2025. In February 2026, the company created its third business arm, with its acquisition of xAI, the parent to Grok, the Musk-developed competitor in the LLM space.

    SpaceX had a slow start financially, as its initial years were spent developing the Falcon 1 rocket, and even after that development, the dependence on the US government and commercial satellite launchers resulted in revenues growing much more slowly than they did at Tesla, Musk's other high-profile creation. Even as late as 2021, SpaceX reported revenues of just over $2 billion, almost entirely from its launch business, but Starlink's subscriber based model has allowed revenues to increase more than five-fold since, reaching an estimated $15.6 billion in 2025, with just under 30% coming from the launch business ($4.1 billion) about the rest from Starlink subscriptions and related businesses ($11.4 billion); xAI, which was acquired in 2026, had subscription revenues of roughly $100 million in 2025.  Without full financials to back up the statement, it is estimated that SpaceX generated an EBITDA of $8 billion in 2025, though with depreciation and other expenses considered, it is not clear how much (if any) operating (or net) profits the company delivered during the year.

   On the funding front, Elon Musk used a portion of his winnings ($180 million) from his PayPal exit as seed money ($100 million) for founding SpaceX, but the company has required multiple rounds of venture capital to fund its infrastructure needs. The first venture capital round of about $12 million was in 2002, but there have at least thirty additional infusions amounting to more than $12 billion. While SpaceX counts big name venture capitalists in its investing roster (Founders Fund, Andreessen Horowitz and Sequoia), it has also seen increasing investments from public equity investors such as Fidelity and public tech companies such as Google. While these venture capital investments have diluted Musk's ownership over the years, he continues to own about 42% of the equity in the company, and with differential voting rights, close to 80% of the total voting rights in the company.

Valuing SpaceX

    It is true that intrinsic valuation, at least in its discounted cash flow avatar, is much easier to do at companies that have many years of historical data and peer groups of companies in the same business, and there are some who view one or both as pre-requisites. If you adopt that point of view, it is easy to see why so many view SpaceX as a company that cannot be valued (yet), since you don't have access to even a single year of financials, let alone a long history, and there are no true competitors. In fact, it is likely that even if the financial statements are made public in a prospectus, most will continue to avoid valuing the company, using uncertainty about the future as an excuse. If you define intrinsic value as the value of a business based upon its capacity to generate cash flows in the future, there is nothing in that definition that requires either historical data or peer group information, and statistically, the fact that you face uncertainty or that you are missing information does not imply that you cannot make estimates, just that the estimates will be noisier..  I have long argued that you can estimate the value of young companies with minimal data, as long as you build a valuation around a business narrative, and accept that this valuation will change, as circumstances do, and with SpaceX, I will get a chance to put this argument into practice.

    To value SpaceX, I consider each of its three core businesses separately since they differ not just on operating metrics, but also on the competition faced  in each one.

• The launch business, which is where SpaceX was born, is still its most identifiable business, and frames the company's story not just as a futuristic company, but one that was able to overcome some of the most significant technological challenges of any start up and not just survive but thrive. SpaceX has established such a robust and long-standing cost advantage over its competitors in the business, stemming from its existing infrastructure investments and reusable rocket technology, that it had a market share in excess of 80% of the launch market in 2025. Its competition will come from some private and government-funded players, who may be able to capture market share, notwithstanding their higher costs, due to security and nationalistic concerns..
• Valuation narrative: The space launch market is estimated to be about $30 billion in 2026 and is expected to grow to $100 billion in 2036, as government and private business demand increases. SpaceX will continue to dominate the business, albeit with a slightly less dominant market share (70%, down from >80% in 2025) of the total market and as costs decrease with scale, operating margins will increase over time to 40%. (I am being conservative in my estimates, insofar as I am ignoring space travel and expanded business opportunities in space, but I don't think, at the moment, that either offers a viable path to augmenting revenues).
• The internet service business, built around Starlink, is the business that accounts for almost two thirds of the revenues of the company in 2025, and it builds on the infrastructure built for the launch business, since SpaceX has used it to launch thousands of satellites into space. At the end of 2025, Starlink had close to 10,000 satellites in space, about two thirds of the entire global count, and is adding to that number every month. That has allowed it to double its subscriber numbers to just over 10 million, in the last year, and while Amazon's acquisition of GlobalStar has brought a potential competitor into the mix, GlobalStar has a fraction of the satellites that Starlink does. The challenge for any satellite-based internet service provider is that notwithstanding the use of low-earth orbit (LEO) satellites to improve service, the broadband service lags more conventional internet technology (fiber optic and cable) in much of the world, leaving it (at least for the moment) with a niche market of rural areas, countries with damaged or no infrastructure and people on the go (airplanes, trains and cars). Thus, while the total internet service market is estimated to be close to a trillion and a half dollars globally, in 2025, satellite-based service accounted for about 1% of that market, delivering under $15 billion in revenues, with StarLink having a dominant market share. 
• Valuation narrative: The satellite internet services market will continue to grow, as technology improves service quality and transit demand for better wifi grows, from $15 billion to $160 billion (from less than 1% to 10% of  of the internet service market) over the next decade. Starlink will see more competition, but its lead in satellites and capacity to use its launch business to get more into space, will give it a substantial advantage and a market share of 75% of the overall market). The cost of customer acquisition will ease over time, as business customers become a larger portion of the business, and operating margins will approach 60% in steady state, as the unit economics are very positive.
• The Large Language Model (LLM) business, from the acquisition of xAI, has brought AI into the SpaceX story, and while that may add to the pricing excitement, Grok lags the other LLMs in terms of revenues and reach, for the moment. In terms of usage, Anthropic (with Claude), OpenAI (with ChatGPT) and Google (with Gemini) are not only more widely used than Grok, in business setting, but are further along in converting them into revenues. While Grok has been bundled into the X Premium subscriptions, and earned about $80 million in revenues in 2025, it seems to be focusing more on consumers and only on niche portions of the business market. This is the most diffuse and volatile of the three markets, in terms of potential market, since the potential market can run from the tens of billions (if they remain subscription-based) to hundreds of billions or even trillions (if they become replacements for human labor or massive productivity boosters). It is possible that Grok may concede the larger and more competitive business space to Claude and ChatGPT and focus instead on consumer subscriptions, giving it a smaller market, but one with less competition. 
• Valuation narrative: The overall LLM market will continue to grow, but more in business applications than in consumer apps, with the market size being determined by how well AI can replicate human labor and regulatory restrictions. xAI will target primarily consumer subscription revenues and niche business applications. That will give it smaller revenues ($80 billion in 2036) than its LLM competitors, but one with less competition and higher margins (50% operating margin), and less reinvestment as it avoids going head-to-head with Anthropic, OpenAI and Google for business use.
• It is undeniable that SpaceX, as a lead player in three fast-growing and volatile businesses, may be able to use its infrastructure to expand each of these businesses. The space launch business, which has generally focused on delivering commercial or government loads and satellites into outer space may become a springboard for space travel, for leisure, research or business.  With its satellite broadband offerings, the possibility exists that the technology and the reach will improve to a point where the service can compete with fiber-optic and cable broadband offerings, perhaps at much lower cost. With xAI, the possibility that Grok finds a way to outflank its LLM rivals, including Claude, Gemini and ChatGPT, in terms of business offerings may be low, but it does exist. The recent acquisition of Cursor, a young AI company in the coding space, suggests that xAI has not thrown in the towel on business applications. In truth, these are all options that may not be viable at the moment, but if they become viable, could add immense value. 
• Valuation narrative: This part of the story is built on the expansion options that SpaceX has to enter large markets, with low probability and high payoff. In a crude attempt to capture this part of the story, I will attach an expected revenue in 2036 to these other businesses of $50 billion and an operating margin of 30%. Since these expansion options, if they do exist, will not show up in the near future, the revenues from these options ramp up after year 6 (2032) in the valuation.

Pulling these storylines together as valuation inputs, I estimate the following numbers for 2036, for the three business lines and for the expansion options category:

    With these numbers in place, and using a cost of capital reflective of SpaceX's business mix (of aerospace/defense, telecom services and AI) of 8%, we can estimate the company's value:

Download spreadsheet

With my story and inputs, the value that I derive is $1.22 trillion, about 10% below the private market pricing and about a third below the expected IPO pricing, but still astonishingly high for a company with $15.5 billion in revenues in the most recent year, and a host of question marks about corporate governance. Note that in this iteration, I have ignored cash and debt, since I do not have the company's financial statements, but it is unlikely that either will have much of an impact on the value of equity for a company with this high a value for its operating assets. 

    As you can see, the SpaceX story not only has many moving parts, but is fraught with uncertainty, and without full financials, it does not have a good starting point. That said, as the story plays out, we will get more clarity, and the story will need to be reworked, with the value consequences unclear. For the moment, though, I am uncertain about every input in my SpaceX valuation, but uncertainty is a continuum, and I am less uncertain about some inputs (such as the revenues and margins in the space launch and satellite internet service businesses) than about other inputs (including the revenues and margins of the LLM and expansion businesses). If you are wondering why the cost of capital is only 8% for the company, close to the median cost of capital for a US company, it is because much of the risk here is specific to the company (thus reducing the effect in a diversified portfolio) and cuts in both directions (upside and downside). In fact, if there are outliers, they are more likely to be on the upside than the downside. With these considerations in mind, I tried to be open about how uncertain I feel about my estimates, and the results of a simulation yields the following distribution for value:

Since the simulation is centered on the same expected values for inputs as I used in my base case, it should come as no surprise that the median value, across ten thousand simulations, of $1.29 trillion is close to the base case valuation of $1.22 trillion. As the pricing for the IPO starts to gain traction, it is worth recognizing that a $1.75 trillion or even a $2 trillion pricing falls in the range of the distribution, though with little or no upside left for an investor paying that price.

    If you feel that it is best to wait for the prospectus to be filed, before doing the valuation, I understand but there are three points worth remembering. First tt is unlikely that the prospectus will contain data that will move the intrinsic value story, since none of the numbers in the reported statements will be large enough to alter the immense value coming from expectations of future growth. Second, while the prospectus will contain estimates of total addressable market and perhaps even profitability, in my experience, it will be hype; expect to see trillions of dollars thrown around nonchalantly for market size. Third, as I see it, it is not an either/or proposition, since I can value the company now, and revisit the valuation when the prospectus comes out, with the advantage being that you are less likely to be swayed by the sales pitch in the prospectus.

Pricing SpaceX

    In an initial public offering, companies are priced, not valued, by bankers (for the offering price), by investors (as the stock starts trading) and by observers to make judgments (on whether it over or underpriced). Thus, you can make the argument that the valuation, with all of its moving parts, is irrelevant, and that you should price SpaceX, not value it, if your intent is to trade on the IPO. That is a legitimate critique, but the argument that pricing somehow dispenses with the need to make assumptions about market size and profitability or does not have the same uncertainties is not. You can take issue with the intrinsic valuation because of the layers of assumptions that I had to make along the way, and I know that for many investors, either invested already in the company ,or planning to invest in it, a pricing may seem less daunting. While I sympathize, I am afraid that the uncertainty will be just as much of an issue in pricing SpaceX, and to see why, take a look at the steps in the pricing process:

At each step in the process, you will run into issues. 

• On the pricing metric front, the problem with picking a metric is an information vacuum, with only two scalars, revenues and EBITDA, available, and even if you consider the most recent private market pricing, which priced the company at about $1.25 trillion, as the market value of equity, the absence of debt and cash numbers makes it impossible to back into enterprise value. This problem should be resolved, for the most part, when the company files a full prospectus, but for the moment, if you assume that the net debt number is close to zero, the resulting enterprise value of $1.25 trillion yields nosebleed multiples of 81 times revenues and 156 times EBITDA for the company, using 2025 numbers. Even with minimalist information, there will be pricing variants that use expected revenues (or EBITDA) in a future year as a scalar, as can be seen in this graph:

There is no inherent problem with using forward numbers in pricing, as long as you do the same for all of the companies in your peer group, but in the case of SpaceX. it is inevitable that bullish analysts, unable to justify the sky high pricing values with trailing 12-month numbers, will resort to using forward pricing, and add to the bias, by inflating revenues in future years. In the graph, I have used the forecasted revenues in 2030 and 2035, from my intrinsic valuation, and the EV to Sales ratio drops from 80.13 (112.18) to 3.91 (5.47), using the private company (estimatedIPO offering) pricing of $1.25 trillion ($1.75 trillion) as the enterprise value. 

• The even bigger challenge in pricing SpaceX will be in the second step, where you have to find comparable firms (or a peer group) to base your pricing on. There is obviously no company out there that is remotely similar to SpaceX, as a composite company, and even if you break it down into businesses, it is likely that you will hit roadblocks. On the space launch business, using publicly traded aerospace and defense companies like Boeing and Northrop Grumman is a non-starter, because they are low growth, lower-margin businesses, unlike SpaceX. Palantir may seem like a logical alternative, and while it may have high growth potential, it is a data/software company that does not have the infrastructure needs that SpaceX does. On the internet service business again, there are conventional telecom firms like Verizon and T-Mobile, but the economics of their offerings are different, and they are not growth companies. In April 2026, I computed the multiples of revenues and EBITDA that publicly traded companies in the aerospace/defense, internet services businesses and technology companies trade at, and they are far lower than what SpaceX can be expected to trade at, if it goes public at $1.5 to $2 trillion:
  
  
  
  Finally, on xAI, there are other LLMs, almost all of which are private companies now, and while you can use the pricing from most recent VC rounds, you are on shaky grounds. Even if you forged ahead with a peer group of high-growth, tech companies, your pricing will almost certainly have to revolved around revenues, rather than profits, and based upon very small samples.

• The one part of pricing that you will almost certainly see is the story telling, especially with analysts who are locked into finding SpaceX to be a buy, with the pricing more of an ex-post rationalization than a analytical tool. No matter what peer group you pick, SpaceX will be priced higher than comparable firms, and to back the argument that it is still a good investment, you will hear stories of its large potential market, significant competitive advantages and profitability. All of these stories are grounded in truth, but they are empty if they remain stories. I will predict that there will be far more buy than sell or hold recommendations for SpaceX, when it does go public, with analysts doing pricing gymnastics with forward multiples, hand-picked peer groups and fairy tales to justifying their positions.

Pricing is an exercise in data analysis, and any pricing of SpaceX will reflect the statistical limitations of the data. Put simply, the only difference between intrinsic valuation and pricing, when it comes to the uncertainties you face with SpaceX, is that with the former (intrinsic valuation), you have to face up to the uncertainties and make your best explicit judgments (on revenues, margins and reinvestment), whereas with the latter (pricing), they remain implicit. If bias is your biggest adversary in assessing SpaceX, and you use pricing, it is very likely that you will find a pricing metric and hand-picked peer group to reflect your biases, and then tell yourself a story on why SpaceX is cheap or expensive.

The Bottom Line

    SpaceX is an engineering marvel that has shown its naysayers, which included almost every luminary in the space community, to be wrong. That said, for potential investors, there are lessons to be learned from watching Musk's stewardship of Tesla. As with all of Musk's creations, SpaceX will be a shape shifting entity, frustrating investors who expect companies to follow linear paths in the corporate life cycle, going from young growth to maturity; it will shift from one narrative to another, often with no advance warning, causing whiplash for investors. When I bought Tesla in 2019, after its stock had taken a beating, I described the company as my corporate teenager, and with Musk in full control, SpaceX is likely to follow the same unpredictable path. That makes it a difficult company to buy, but it makes it an even more dangerous company to sell short, as Tesla short sellers have discovered in the last two decades. With all that said, SpaceX is a unique company with immense competitive advantages, and while I would not be interested in buying at the rumored IPO pricing of $1.75 trillion, it is one big correction away from being fairly priced or even cheap. If that happens, I will be a buyer, but will do so with the recognition that this company comes packaged with a founder who is both uniquely gifted and deeply flawed, and complaining about the parts of Musk you do not like, while enjoying the fruits of the aspects that you do, is unfair.

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Spreadsheets

1. Valuation of SpaceX in April 2026 (Pre-IPO, and with limited financials)

Oil, War and the Global Economy: The Market's Narrative in March 2026

    Markets play an expectations game, and in March 2026, we saw the process play out, with all of its upsides and downsides. The month started with a war in the Middle East, which quickly percolated into soaring oil prices and dropping stock prices, but the overwhelming factor was uncertainty about almost every dimension of the war - how long it would last, what permanent changes to oil prices would emerge as a consequence and how global governments and economies would respond to these changes. As we reach the end of the month, rather than getting answers, we face more questions, and not surprisingly, markets are volatile, not just on a day-to-day basis, but in intraday trading, driven as much by rumors and conjecture, as by facts. In keeping with my view that it is during periods of maximal uncertainty that you need perspective and to back to basics, I will focus my attention on market behavior in March, and what we can learn from that behavior, as a precursor for the months to come. 

The Market Narrative in March

    We live in an age of commentary, as self-proclaimed experts offer prognostications, half-baked or otherwise, about what is to come, and the Iran war, with its mix of politics, economics and religion baked in,, has drawn a large and extremely diverse set of expert forecasts. Given the strong priors (about Iran and Trump) that many of these experts bring to the game, it should not be surprising that their views about how the war will play out and the effect on markets is driven by those priors. It is up to markets to reconcile these contradictory perspectives, and come to consensus, and I will try to extract from market behavior what the market narrative is, leading into April 2026, with the recognition that it could be wrong and change overnight in good and bad ways. That said, over the last decade, I have learned that the market is far better at making sense of complexity and uncertainty than experts are, and it behooves us therefore to listen to what it is saying.

The Oil Price Shock

    As with almost every event in the middle east, the effects of the Iran War played out first in oil prices, and oil has been the lead player in March, surging and volatile, but with disparate impacts even within that market. In the graph below, I look at spot prices on Brent Crude and West Texas Intermediate (WTI) during March:

Both Brent and WTI crude oil saw prices increase in March, but with the price of Brent rising 49.9% and WTI rising 48.6% during March, the difference between the two almost doubled during the second half of the month. That divergence reflects the two-fold effect of the war on oil supply, with the first being the shuttering of oil production in the Gulf States and the second being the effecting throttling of ship traffic through the Strait of Hormuz, a key passageway for Middle Eastern oil to Asia and Europe. While both factors push up oil prices, oil and gas production in the US, the largest oil producer in 2025 (producing 13.58 million barrels or 16% of the total), was less affected by the Hormuz closing and supply chain issues, explaining the increasing price divergence mid-month.

    There was another tea leaf to read, and it came from watching oil futures prices. In the graph below, I compare the spot prices to Brent crude to June and December futures contracts prices:

While spot and futures prices have both risen in March, the latter have gone up less, indicating that, at least for the moment, the market sees the interruptions in oil supply as more temporary than permanent, though the market does see a lasting impact even in that optimistic scenario, with December futures up almost 25% over the pre-war level.

Inflation, Interest Rates and the Economy

    The creation of OPEC and the oil price embargo in the 1970s and the subsequent inflation spiral in the 1970s is now part of market legend, and the interlude in 2022, when the Russian invasion of Ukraine, and the subsequent sanctioning of Russian oil, caused a spike in inflation rates, has made investors wary. While the effects on gasoline prices are in the news, it is one item in the inflation basket, and it is unclear still how much higher oil prices will affect inflation for the rest of the year and perhaps into next year. While we wait for the actual inflation numbers to come out, markets don't have that luxury and the early and perhaps best indicator of market expectations on inflation are showing up in interest rates. The graph below looks at 3-month and 10-year US treasuries over the course of March 2026:

The 3-month treasury bill rate has barely budged over the month, moving from 3.67% on February 27, 2026 to 3.70% on March 31, 2026, but the ten-year bond rate saw a much bigger increase from 3.97% on February 27, 2026, to 4.30% on March 31, 2026. The biggest increases in rates are in the intermediate maturities, with the 2-year and 5-year rates rising by 0.41% over the course of the month. If you view interest rates, as I do, as driven by expected inflation and expected real growth, the most plausible reading is that the market sees an increase in inflation that is persistent. If you are a Fed-watcher, though, your reading may be that the rise in oil prices has tied the hands of the Fed, lowering the likelihood that the Fed Funds rate will be cut in the coming months, but that would leave you with a puzzle to resolve. Since the Fed Funds rate, an overnight bank borrowing rate, has its biggest impact on the short end of the maturity spectrum, how do you explain the fact that short term rates have not changed much?

    The increase in interest rates is not just specific to the US, with rises in rates across other currencies, as you can see in this graph of ten-year Euro, Yen and Yuan rates:

The Japanese Yen and Euro rates are up significantly over the month, but the Yuan rate has seen no change in March 2026. Staying with the market narrative, this indicates higher inflation across countries and currencies.

    While there are many who are speculating on what higher inflation and oil prices will do to the economy, and investment banks and data services (See Moody's,  Goldman Sachs) have been rushing to update their forecasts for the US economy, the market has not been in as much of a rush to make the judgment. The economy was showing signs of fatigue coming into March 2026, with anemic growth and employment numbers, and it is possible that the oil price shock will tip it over into a recession.

The Price of Risk

    The heightened uncertainty generated by war and its consequences has played its way out not just in oil prices and treasury rates, but in the prices that investors charge for risk. In a month where the clash between greed and risk took front stage, with the balance shifting often on a minute-by-minute basis during the trading day, we also see increases in the price that investors charge for taking risk in both equity and bond markets. In the equity market, that price of risk is the equity risk premium, a topic that I talked about extensively in this post and paper, with the argument that a good measure of this risk premium will be forward-looking and dynamic. My implied equity risk premium estimates tried to capture the changes in equity risk premiums on a daily basis, and completing the assessments for the entire month, here is what the equity risk premiums looked like in March 2026:

The surprise here is not that the equity risk premium rose over the course of the month, expected given what was happening in the Middle East, but that it rose so modestly. In fact, over the course of March, the implied equity risk premium for the S&P 500 rose from 4.37% on February 27, 2026, to 4.77%  at close of trading on March 31, 2026, an increase of 0.40% for the month.

    In the bond market, the price of risk is the bond default spread, and in the graph below, I look at default spreads for seven bond ratings classes from AAA to C (& below):

Here again, the spreads increased over the month, but only modestly, even at the lowest ratings classes. Thus, the BBB default spread over the 10-year treasury rose only 0.08% during the month, from 1.07% on February 27, 2026, to 1.15%on March 31, 2026, and the high yield spread (for CCC and below) increased from 9.50% at the start of March 2026 to 10.10% at the end of the month.

    The third proxy for risk is the volatility index (the VIX) for US equities, and that measure rose during the course of March 2026:

During March 2026, the VIX rose from19.86 at the start of the month to 25.25 by the end of the month, an increase much smaller than the increases we saw in March 2020 (COVID) or in the first week of April 2025 (Tariff week).

    With the caveat that this is still mid-narrative, the bottom line from the movement in all of these risk measures is that while the market had a bad month, much of the marking down in equity values can be attributed to real concerns about higher inflation and economic damage, and is not the result of panic selling, at least in the aggregate. To back this up, I took a look at two collectibles - gold, which has a history of holding its value or even increasing during crises and panics in financial markets, and bitcoin, which has not had that history so far, but is marketed by its advocates as a potential hedge:

Gold was down 10.42% during March 2026, uncommon for a crisis month, but bitcoin was up 3.30% during the month, and it is entirely in keeping with bitcoin investors marching to their own music, though it will be interesting to see how this dynamic plays out, as this repricing continues.

Effect across Geographies

    The war is in the Middle East, but there is no place to hide from its effects. To see how the war has played out in different regions, I looked at the change in aggregate market cap, in US dollar terms, in March 2026:

You may be surprised to see Africa & the Middle East and Eastern Europe & Russia show up as the best performing markets, with about 2% decreases in market capitalization, but it reflects the dual impact of the war. While it has wreaked havoc across the Middle East, the higher oil prices that it has brought with it are providing upside for oil producers that offsets some of the damage.

    Since these dollar returns reflect local market performance as well as the strength/weaknesses of their currencies against the dollar, I looked at the US dollar's performance in March 2026:

I know that I am piling on at this stage, but I do compute equity risk premiums for other countries twice a year, once at the start and once mid-year. Given how much March has shaken up the status quo, I will make an exception and re-estimate equity risk premiums, by country, updating both my mature market premium (which I estimate from the S&P 500) as well as the country ratings, default spreads and country equity risk premiums for other countries. 

Download spreadsheet with country ERPs

It is worth noting that these equity risk premiums are computed based upon sovereign ratings, which are slow to change, as the world convulses. That has been an issue with my ERP computations for Russia and Ukraine, since 2022, with the rating for the former withdrawn and the rating for the latter frozen at Ca (Moody's); I have use a country risk score from PRS for the last two years to update Russia's equity risk premium, an have done the same for the Ukraine in this update. You can see the same issues now, with the war in Iran rocking the boat, and at least for the Middle East, there is reason to believe that the ratings may understate country risk. While none of the countries in the war zone have seen their sovereign rating change (yet), these countries have market estimates of sovereign default risk in the form of sovereign CDS spreads, I looked at the movement in those spreads during the course of the month:

Not surprisingly, market measures of default risk are more sensitive to war effects, and have risen for much of the Middle East, as worries have mounted, with bigger increases in Qatar, the UAE and Turkey than in Saudi Arabia and Kuwait. The United States has also seen a surge in its sovereign CDS spread, and the global sovereign CDS spreads have risen about 12% in the first quarter of 2026. Using these sovereign CDS spreads as measures of default spreads for this part of the world may yield more realistic equity risk premiums.

What now?

    I noted at the start of this post that the uncertainties that manifested during March 2026 about the direction, duration and effects of war are still unresolved and perhaps even grown as we start April. As investors try to navigate their way through this period, here are the questions that you will need to answer to decide where you fall in the continuum between complacency to full-blown panic:

In the complacency scenario, the war ends quickly (in days or weeks, rather than months), the damaged  infrastructure  is repaired quickly and the new regime in Iran is viewed favorably by the rest of the world, allowing the sanctions on the country to be removed, it is likely that oil prices will drop, perhaps even to below pre-war levels, as Russian and Iranian oil is freely bought and sold. In the full-scale panic scenario, the war continues for months, with lasting damage to infrastructure and supply chains and Iran's new government stays sanctioned, oil prices are likely to stay high and perhaps even go higher, the global economy will be kneecapped and parts of the Middle East (Dubai and Abu Dhabi) that had created a business and tourist friendly setting will struggle to find their balance. 

    In either case, the war has shaken up the status quo, and I see lasting consequences that go well beyond oil. The capital flows from the oil rich countries which has flowed generously to everything from AI start ups to Premier League clubs will shrink, creating down-market effects.  That money, and the funds that were set aside to build vanity projects, from ski resorts in the deserts to state-of-the-art cities will be redirected to building pipelines and securing the flow of oil. Global politics has also been roiled, and even if the war ends quickly,  there is damage that has been done to partnerships and security agreements that cannot be undone. 

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Datasets

1. Equity risk premium for S&P 500, by day (March 2026)
2. Equity risk premiums, by country (updated April 1, 2026)