The AI hype seems endless, and investors are salivating at the chance to finally buy stock in some of the biggest names in the industry
But as Anthropic and OpenAI prepare to go public, and as SpaceX stock struggles after a historic IPO, there’s reason for investors to tread carefully, Apollo’s top economist, Torsten Sløk, says
SpaceX kicked off the summer with the largest IPO ever, setting the stage for this year’s deluge of stock offerings from some of the most coveted private tech companies
But as a chart shared by Sløk shows, recent history suggests the stock of newly public companies is risky bet in the years following an IPO
Apollo Global Capital/The Daily Spark
Since 2019, the market regime that’s influence the post-IPO stock performance of companies has been characterized by three things: “peak valuations,” “a hostile rate regime,” and “low quality, high bar,” Sløk said
“The boom pushed marginal companies public before they were ready while the market-adjusted benchmark was set against an index carried by a handful of mega-cap winners,” he wrote
The economist highlighted that this was particularly true during the pandemic-era boom of 2020 and 2021. The combination of zero interest rates and high retail demand fueled by government stimulus created an environment that sparked rich valuation for companies rushing to go public
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Now a new wave of mega-IPOs is taking shape, as OpenAI and Anthropic prepare to debut. Despite some concern about their high valuations, investors excitement is high
Other market pros have raised similar concerns about the rush to public markets. Economist and IPO-market veteran Jay Ritter told Business Insider that history suggested that SpaceX stock would underperform. His call has proven accurate about six weeks after the offering, with the stock down the stock down about 18% from the $135 IPO price
“Each of these forces could persist,” Sløk added of the factors that hobbled the IPOs in the years after 2019. “Valuations may re-inflate in the next IPO window, rates look set to stay structurally higher than the 2010s and index returns remain concentrated in a few mega-caps that keep the relative bar high.”
