Unicorn IPOs

[mattee2264]

Could be a big year for IPOs. OpenAI and SpaceX over $1TR, Anthropic $500B and if those are successful no doubt quite a few others as well. Those are not insignificant amounts of money. Perhaps as much as 10% of the market cap of the NASDAQ. Especially within the context of so much money being passively managed these days. 

 

There are rules such as 10% minimum float requirement and 12m seasoning period. But there are ways for index commitees to fast track inclusion into their indices and they'd be under a lot of pressure to do so. 

 

That would require them to sell seasoned profitable companies with more moderate valuations to buy these unprofitable startups that have speculative unproven technologies. This would mean a lot of forced buying that would drive valuations even higher. It would also mean that an even greater % of the indices would to a large extent be a big bet on the AI theme. 

 

So if AI follows the same path of the internet (short term bust, long term success) does not really bode well for already expensive markets. 

 

I also get the feeling these IPO valuations are deliberately inflated because the float is so small and a lot of the companies investing such as Mag7 are forced to invest because OpenAI and Anthropic are customers and if they run out of money then it will have knock on effects for Mag7. Plus you always have SoftBank who will invest in anything shiny and new at any price. Then once the valuation is set and index inclusion is achieved there is a tidal wave of forced buying by index funds. So no real effective price discovery going on. 

 

Anyone else getting some 1999/2021 vibes? 

 

 

 

 

 

 

[frommi]

Yes. Especially since all 3 are commoditized already. But thanks for bringing the selling part up, i didn't have that on my radar. It makes the situation even worse.

Edited April 22 by frommi

[Milu]

1 hour ago, mattee2264 said:

Could be a big year for IPOs. OpenAI and SpaceX over $1TR, Anthropic $500B and if those are successful no doubt quite a few others as well. Those are not insignificant amounts of money. Perhaps as much as 10% of the market cap of the NASDAQ. Especially within the context of so much money being passively managed these days. 

 

There are rules such as 10% minimum float requirement and 12m seasoning period. But there are ways for index commitees to fast track inclusion into their indices and they'd be under a lot of pressure to do so. 

 

That would require them to sell seasoned profitable companies with more moderate valuations to buy these unprofitable startups that have speculative unproven technologies. This would mean a lot of forced buying that would drive valuations even higher. It would also mean that an even greater % of the indices would to a large extent be a big bet on the AI theme. 

 

So if AI follows the same path of the internet (short term bust, long term success) does not really bode well for already expensive markets. 

 

I also get the feeling these IPO valuations are deliberately inflated because the float is so small and a lot of the companies investing such as Mag7 are forced to invest because OpenAI and Anthropic are customers and if they run out of money then it will have knock on effects for Mag7. Plus you always have SoftBank who will invest in anything shiny and new at any price. Then once the valuation is set and index inclusion is achieved there is a tidal wave of forced buying by index funds. So no real effective price discovery going on. 

 

Anyone else getting some 1999/2021 vibes? 

 

 

 

 

 

 

I’d say 1997 vibes. We have a few more years to run yet. 

[WayWardCloud]

The main change no one is talking about is how late IPOs now happen in the chain of funding. I think of the publicly traded stock market as a cornerstone of democracy because it's a way for the little guy to have a chance at getting rich as well and participate. But if exciting new companies only tap the public markets when they reach hundreds of billions in valuation you're never going to 50x or 100x the way it used to be possible. The returns inside indexes are achieved almost entirely by a tiny minority of massive outperformers. I worry the private investors in Silicon Valley / Wall Street are now sucking out all the growth and leaving us with "the rest", unloading the good stuff on the public very very late and at insane valuations as a final way for all of them to get out. I would have loved to invest in all three companies many years ago (and Waymo) and actually looked into doing just that at valuations that in hindsight would have made me rich, but I quickly learned it was not available because I'm not part of that little club. It's very frustrating.

Edited April 22 by WayWardCloud

[WayWardCloud]

9 hours ago, frommi said:

Especially since all 3 are commoditized already.

How is SpaceX commoditized?

[Milu]

1 hour ago, WayWardCloud said:

The main change no one is talking about is how late IPOs now happen in the chain of funding. I think of the publicly traded stock market as a cornerstone of democracy because it's a way for the little guy to have a chance at getting rich as well and participate. But if exciting new companies only tap the public markets when they reach hundreds of billions in valuation you're never going to 50x or 100x the way it used to be possible. The returns inside indexes are achieved almost entirely by a tiny minority of massive outperformers. I worry the private investors in Silicon Valley / Wall Street are now sucking out all the growth and leaving us with "the rest", unloading the good stuff on the public very very late and at insane valuations as a final way for all of them to get out. I would have loved to invest in all three companies many years ago (and Waymo) and actually looked into doing just that at valuations that in hindsight would have made me rich, but I quickly learned it was not available because I'm not part of that little club. It's very frustrating.

Ya it would have been nice to have been able to get into these companies years ago. Still if these companies live up the expectations some people have they could go on to become the new dominant firms in the market. So while a 50 or 100x would have been nice, a 5 or 10x isn’t too bad either.

[frommi]

8 hours ago, WayWardCloud said:

How is SpaceX commoditized?

Half of SpaceX is xAI and the models in general were meant with that. SpaceX is of course Musk's holy cow that will be worth tenth of trillions of dollars in the future

[mattee2264]

14 hours ago, WayWardCloud said:

The main change no one is talking about is how late IPOs now happen in the chain of funding. I think of the publicly traded stock market as a cornerstone of democracy because it's a way for the little guy to have a chance at getting rich as well and participate. But if exciting new companies only tap the public markets when they reach hundreds of billions in valuation you're never going to 50x or 100x the way it used to be possible. The returns inside indexes are achieved almost entirely by a tiny minority of massive outperformers. I worry the private investors in Silicon Valley / Wall Street are now sucking out all the growth and leaving us with "the rest", unloading the good stuff on the public very very late and at insane valuations as a final way for all of them to get out. I would have loved to invest in all three companies many years ago (and Waymo) and actually looked into doing just that at valuations that in hindsight would have made me rich, but I quickly learned it was not available because I'm not part of that little club. It's very frustrating.

 

Plus the public markets will be tapped only when it is incredibly favourable for these companies to do so. So public are perhaps more likely to end up as bag holders. 

 

I mean if you are valuing OpenAI, Anthropic etc at close to $1TR how much future growth are you already discounting? These are companies losing billions of dollars a year and being floated at as much as 65x sales. That is reminiscent of the 2021 SaaS madness. 

 

And these are market caps that put them in the same company as mature technology companies such as Google, Amazon, Facebook etc that took decades to grow into their valuations and only achieved them after demonstrating the strength of their moats, overcoming all kinds of competitive, regulatory and other challenges, posting consistently strong earnings growth and returns on capital etc. 

 

And as I pointed out in my earlier post these valuations are not the product of careful investors making conservative projections of future growth. The big placements have and will be with Mag7 companies who need the IPOs to be highly successful because the funds raised will be spent by Open AI/Anthropic on their products/services.