Brace Your Portfolio for Mega-IPOs

Ivanna Hampton: Welcome to Investing Insights. I’m your host, Ivanna Hampton. 2026 is the year of the mega-IPO. SpaceX, Anthropic, and OpenAI are working their way through the pipeline as anticipation builds for their blockbuster debuts. Elon Musk’s conglomerate is leading the shift from private to public markets. Demand is appearing to skyrocket to buy the companies the moment their stocks are publicly available. But is that the right move if you’re investing for the long term? Or are there better opportunities among stocks that are down on fears of AI competition, such as software as a service, or SaaS, stocks? These big private firms’ public arrivals will also affect index funds and 401(k)s.

So what should you make of all this? Paul Condra is the global head of private markets research for PitchBook, a Morningstar company. He and his colleagues are presenting this topic at the upcoming Morningstar Investment Conference in Chicago.

Welcome to Investing Insights, Paul.

Paul Condra: Thank you. Thanks for having me.

Hampton: It’s been a busy time for anyone covering IPOs. Can you talk about why SpaceX, Anthropic, and OpenAI are ready to move into the public markets?

Condra: Sure. Well, look, while it’s not necessarily normal to have startups of this size going public, it’s very normal for startups to eventually go public. They need to raise capital. They need to provide exits for their shareholders. And so really it’s just a question of timing. Startups want to go public when the demand for the stock is strong, when there’s capital available, and they’re at a good point in their growth curve that they can obtain those peak valuations. And I think all of those things are lined up right now for these companies, and coincidentally, they happen to be very massively scaled, transformational companies as well.

Hampton: And a follow-up question: Is it unusual or unprecedented for such massive IPOs in the same year?

Condra: It’s absolutely unprecedented. So these three companies could raise more in one year than all IPOs combined since 2022. And I think this is really a clear sign of just how much capital markets for startups have changed over the last decade, but it’s also a sign of just how transformational these companies are perceived to be in terms of the impact that they’re going to have on the economy and just on capital markets in general.

Hampton: And we’re recording this episode on Wednesday, June 10. SpaceX is expected to go public within days. The company believes it’s worth $1.8 trillion, and Morningstar equity analysts disagree. They say it’s about half of that. What’s behind the gap?

Condra: Morningstar has a very framework-based approach to valuation, and they’re really looking at discounting known and forecastable cash flows, is kind of how I think about it. And I think that that’s an approach that works very well over the long term. In this situation, I think you’ve got a lot of short- to medium-term investors, and they often apply a lot more value or option value to some of the riskier parts of the story. And when you’re dealing with CEOs like Elon Musk, there’s a lot of things that could be huge or they may not be huge. So you’ve got like data centers in space or potentially acquiring Tesla. I think there’s also some debate about what’s the real addressable market size for the telecom business. And I think for Morningstar, they’re going to give you a bit more of a sober conservative approach.

And I think that’s something that retail investors should actually pay close attention to because when you have companies like this, they’re going public, there’s a lot of excitement, there’s a lot of anticipation, and that can push valuations up maybe higher than they should be. I think it’s important to consider what are some of these contrary conservative outlooks for the stock over the long term.

Hampton: SpaceX shares will become available on opening day and over time due to a tier selling schedule among insiders. How should retail investors approach buying SpaceX stock?

Condra: There’s really a lot of unique factors that are going to have significant impacts on how this stock trades, especially in the early days. And they’re not necessarily related to business fundamentals. One is the lockup schedule, and that extends through the end of the year. You’ll have these regular bouts of selling pressure. But then in the early days, you’re going to have a lot of buying pressure from index and ETF funds. They’re going to be forced to buy SpaceX because it’s going to be represented in the index. They’re also making a large share of their IPO available to retail brokerages, to retail channels. And that opens the door to retail ownership, and generally, that’s a little more of a volatile shareholder base. And then you have this impact of heavy secondary pre-IPO trading activity, all these SPV and other vehicles that allowed early access to the stock before it went public, so that’s going to play a role. The short of it is you’ve got all these unique factors. It’s not normal to have all these things at once, and this is going to drive probably a lot of volatility that’s really not related to the business fundamentals. I think what shareholders need to do is really just strap in for the ride.

Hampton: Let’s pivot to Anthropic’s upcoming IPO. The maker of Claude has recently hit a valuation of almost $1 trillion. How has this startup firm surpassed ChatGPT maker OpenAI in the valuation race?

Condra: Sure. I mean, there’s a lot to that story, but I think the big thing really is that Anthropic appears to be having a lot more success building an enterprise business. And that’s viewed as a more stable, predictable revenue base relative to OpenAI that is really focused on the consumer market, though they’re also getting in the enterprise space as well. Anthropic also appears to be growing at a faster rate and has a clearer path to profitability relative to OpenAI.

Hampton: Now, PitchBook has written about OpenAI’s so- called “broken economics.” What’s going on there, and could that spell trouble for its own IPO?

Condra: Right. We’ve done a lot of work on this, and I think it really just comes down to profitability. Anthropic’s managed to create a lower cost structure. They’ve got cheaper training costs. They’ve focused on model efficiency and the supply chain flexibility. On the other hand, OpenAI, which was really a big first-mover in this space, they focused on a raw, large-scale compute strategy approach, and they’ve committed to these long-term suppliers, and it just requires a larger investment. And so for them, it’s clouded the view in terms of profitability, especially relative to Anthropic, where that route to profitability seems like it could be much closer. I think that’s the key thing creating this controversy around the OpenAI AI story.

Hampton: What do you think Anthropic and OpenAI will be watching from SpaceX’s debut, and what should everyday investors notice?

Condra: I’m sure they want it to be successful. That’s going to build confidence for them in their own efforts to go public. It’s going to indicate strong demand for high-growth tech innovators. But what I think everyday investors need to keep in mind is that, as capital flows toward these massive companies, and they’re very large, it’s going to keep selling pressure on just about everything else, especially in tech. It could be a great time to start looking at other quality businesses that might be available at lower prices. So that might be one way I’d think about positioning in this environment.

Hampton: Nasdaq and the FTSE Russell modified their rules to allow for a so-called “fast entry” for giant private companies. Explain the new rule and what the change means for index funds and retirement accounts like 401(k)s.

Condra: Yeah, essentially it means these companies are going to be added to the indexes quicker than they were before—so within a couple of weeks as opposed to many months or quarters under the old system. In one sense, this is going to make the indexes more accurate. They aren’t going to be excluding these big companies for arbitrary reasons. It also means that funds tied to the indexes can provide exposure to these high-growth companies more quickly, and that makes them more desirable to investors that want the exposure. It also means the funds are going to be forced to buy these stocks in large quantities right after the IPO, and that’s when prices are at a peak. So while it’s a way for the index providers to stay relevant and for the fund providers to provide that exposure, there could be these unintended consequences in terms of pricing dynamics.

These funds, they’re mostly found in people’s 401(k)s. They’re going to be forced to buy SpaceX at peak prices while at the same time selling other companies low at depressed prices, and that’s generally not an optimal strategy for long-term returns.

Hampton: How can investors brace their portfolios for massive private companies that are going public?

Condra: I think it’s important to remember the point from above. Index funds are being forced to sell cheaper stocks to buy expensive stocks, and that goes against everything Warren Buffett’s ever said about long-term value investing. But the silver lining is that this could result in some good deals out there, especially when you consider SaaS stocks. They’ve also been under pressure from AI disruption and SaaSpocalypse. So I might think about shoring up that exposure. These new IPOs will also not also be, they’re not going to be fast tracked into the S&P 500. They’re not making the same rules changes there. So that’s an index that could underperform the Nasdaq, and it still contains the world’s best companies. I might think it’s a good time to start thinking about what stocks are kind of getting caught up in the wash here, or what indexes, and whether it makes sense to allocate in that direction.

Hampton: What’s the takeaway as private firms turn to everyday investors to help pay for the AI infrastructure and related costs?

Condra: For me, I think the key takeaway is that relative to SaaS, this new cycle of AI technology is expensive to build. SaaS companies were much cheaper to build. They just had to make software, and as a result, they had high margins, and they generated a lot of cash, and then they could use that cash to repurchase their shares, and that makes for really great stocks. AI companies, on the other hand, they’ve got massive capital expense needs. They’ve got supply chain dependencies. They need to source complicated things like chips, power, data centers. And so they have this inexhaustible need for cash. And so for this reason, I think it may be a while before they start buying their own shares back. In fact, they’re probably more likely to sell more shares in the near future than buy them back. So, while the growth is strong, the story is transformational, and these are super exciting companies, we still don’t know really what a mature AI company looks like as a stock and how it’s going to behave, and so to simply kind of think of them as eventually behaving like SaaS stocks over the past decade, I think that’s not really the right comparison.

Hampton: Paul, thank you for joining me on Investing Insights for the first time. I look forward to meeting you in person at the Morningstar Investment Conference.

Condra: Yeah. Thanks, Ivanna. Thanks for having me.

Hampton: That wraps up this week’s episode. Thanks for making this show part of your day. A couple of reminders. Give Investing Insights five stars on Apple Podcasts to help others find the work we’re producing for you, and subscribe to Morningstar’s YouTube channel to watch new videos from our team. Thanks to Senior Video Producer Jake VanKersen. I’m Ivanna Hampton, editorial multimedia manager at Morningstar. Take care.