James Dow: Elon Musk won’t live forever

October 15, 2026

James Dow, Professor of Finance at London Business School since 1999, has a special interest in financial bubbles and recently wrote extensively about CEO compensation. He has followed the recent IPO of SpaceX with special interest and commented about it on diverse international media. During a meeting at London Business School, a stone’s throw from Regent’s Park in London, he reflected on the current state of the stock market.

How much of the valuation of SpaceX has to do with its CEO Elon Musk?

‘The answer is clear: a lot. There seems to be a general feeling among investors that they can’t afford to underestimate Elon Musk. It leads to extreme valuations of his companies. This is true for SpaceX and also for Tesla.

There are obviously some very good things about Musk. His execution is quite good. He’s also not afraid to express some daring expectations. A flight to Mars or data centres in space sounds to me very much like science fiction, but investors seem to like it. I don’t like science fiction, so that might be my problem.

The Musk factor is risky though. He won’t live forever. Some of the projects of SpaceX deal with the distant future. Musk may not be around anymore then. He can’t live forever.’

Aside from the Musk factor, does the valuation of SpaceX reflect the potential of Starlink or its capabilities in AI?

‘It has to be the link to AI. Starlink is basically a finished product. It’s very successful, but it wouldn’t warrant the extreme valuation of SpaceX. The high valuation is related to untested developments like the data centres in space. I called it science fiction, because I haven’t read any kind of reports that specify how those data centres would be billed. All right, I understand that one can use solar power and that cooling is not much of an issue because it’s extremely cold in space, but it remains extremely vague, at least from what I understand.’

You mentioned Tesla earlier. What makes you question its valuation?

‘Well, the valuation is clearly too high for a car company. The valuation is probably also too high for a driverless taxi company. The problem is that Tesla doesn’t do enough to protect itself against competition. It’s not like Microsoft or Apple, which are extremely good at binding its customer base to their companies. Maybe that’s not possible for Tesla, but it does make it vulnerable.

 

I would hesitate to call it a bubble. There’s still too much uncertainty about the benefits these new technologies will ultimately deliver.

 

There are obviously some very good things about Tesla. Musk was the first one to realise that with creating electric cars it was not only about the vehicles, but about integrating them with software and charging systems. The last part hasn’t been that successful, but the idea was right.

Tesla clearly had an advantage because of its integrated approach. I am not sure if that’s still the case. It is in danger of being squeezed between the more expensive electric cars like the German ones and the lower-cost Chinese manufacturers. That’s definitely the case in Europe. In the US its market share is more robust, probably because of its extensive charging network over there.’

Are you worried about these extreme valuations in general? Do you think there might be a repeat of the internet bubble that burst in 2000?

‘It’s quite natural to make a comparison between now and the end of the nineties. There are important differences though. The internet was largely ignored by many companies in the early nineties. Towards the end of the decade every imaginable company presented itself as the newest dot-com. This was even true for companies that were hardly related to the internet. It was a bubble that had to burst.

The situation nowadays is different. There are some extreme valuations of companies, basically related to the opportunities and possibilities around AI, but it is only a relatively small number of companies. It’s surely not as widespread as it was at the time.

The valuations of the relatively few companies that we talk about at the moment are extreme though and they do represent a significant amount of the total value of the stock market. But I would still hesitate to call it a bubble. There’s still too much uncertainty about the benefits these new technologies will ultimately deliver. This is especially true when it comes to AI. Companies are starting to embrace it. Who really knows what will happen?’

 

When those markets would collapse, it might affect the whole financial system, especially in the case of private debt. That’s really worrying.

 

The difference between the valuation of growth stocks and value stocks has risen in the past few years. How do you explain this?

‘It has to be fashion. I sometimes think that a large part of current investors seem to be very much interested in science fiction. The result is that value companies seem slightly undervalued. Traditional research shows that value stocks perform better over the longer term. One would assume a correction in the future, but it remains unclear when.

I don’t think that the overvaluation of growth stocks is the biggest problem. Investors have also embraced new products like bitcoin and private debt. These kinds of products are very speculative in my eyes. When those markets would collapse, it might affect the whole financial system, especially in the case of private debt. That’s really worrying.’

What about investments in private equity companies?

‘That’s also problematic. One of the real advantages of the stock market is that there is a good insight in the performance of the companies. There’s a lot of scrutiny around the financial results. That’s not true at all around private equity. You have good data on stock market returns, but that’s not the case for private equity returns. They might be efficient in the way they operate, but their ownership structure is not efficient, its not transparent enough for the investor. If you’re a pension fund who has the choice of investing in either of the two, I wonder how you can make a proper comparison. It’s very difficult.’

You’ve also written a lot about CEO compensation. What do you see as the main reason for the steep rise of it in the past decade?

‘I think it has something to do with the fact that companies seem to be in a constant state of restructuring. This has partly to do with the role of private equity. In the past, private equity firms would buy the parts of companies that were functioning less well in order to restructure them. This was all done in a relatively short timeframe of about five years.

Restructuring is no longer solely the task of private equity. It is a common theme within most companies. It gives the CEO a lot of discretion. Most larger companies are very conservative. They don’t want to take any kind of risk. They will give the job to someone who has proven elsewhere that he or she is capable of delivering this kind of change. That drives up the valuation of the CEO.

That might not be the whole story. In my opinion, much of the valuation of CEOs is driven by the fact that a bad CEO can do so much damage. That’s why companies opt for someone with a proven track record, just to avoid the bad apples among them.’

 

Much of the valuation of CEOs is driven by the fact that a bad CEO can do so much damage.

 

Does it not lead to internal conflicts within companies?

‘It certainly does. I’ve recently had a series of interviews with senior-level executives at companies. They all agree that CEOs are way overpaid. These CEOs have reached their position because of nasty internal politics or because of luck, is the dominant opinion. When they reach the position of CEO, they change their opinion of course.

Most economists agree that the market for CEO compensation is not completely free. There is a certain network that consolidates each other’s power. In countries like the UK and the Netherlands, it certainly is a small network.

Lots of British companies have listed in the US in the past years. That’s also part of the explanation. People in the US have traditionally worried much less about high compensation than people here in Europe.’

Has the role of the CEO become more powerful over the years?

‘It certainly has. In the past, European companies were often led by the CEO and the CFO, with an important role for the chairman. The chairman wouldn’t interfere in day-to-day operations but would be able to fire the CEO. I have the feeling that this has changed.

The role of the CEO has always been more dominant in the United States, where the positions were often combined. Although that’s not common in Europe, the role of the CEO has become more dominant over the years, which is also reflected in their compensation.’

Speaking of CEO compensation, Warren Buffett, for more than sixty years the CEO of Berkshire Hathaway, famously only received a salary of 150.000 dollars. What does his departure mean?

‘It’s certainly a loss. I always have my students read a compilation of articles from the annual reports he wrote for Berkshire Hathaway. They excel in clarity and frankness about the way business has been in the past year. It would have been wonderful if more companies had followed that example. The only criticism I have with those reports is that they were quite old fashioned in the sense of the humour that was used.’

 

James Dow James Dow studied Economics at the University of Cambridge and got his PhD at Princeton University in 1987. Dow has been Professor of Finance at London Business School since 1999. Before, he had a similar position at the European University Institute in Florence. His work has focused on subjects like stock price dynamics and financial bubbles. He’s been a consultant in various companies, currently at Compass Lexicon.