After SpaceX, more mega-IPOs are on deck. This is what advisors should know

SpaceX’s heavily hyped debut as a public company last week made history, while also laying the foundations for more mega-IPOs looming on the horizon for investors and their clients.  

Elon Musk’s space exploration company enjoyed the biggest IPO of all time and ended its first day of Nasdaq trading with an eye-watering valuation that topped $2 trillion. The stock, which climbed more than 19% on its debut, continued its tear Monday, and is up more than 14%.

SpaceX, however, is just one of several mega-IPOs in the spotlight. AI giant Anthropic, maker of the Claude assistant, recently filed its form S-1 with the Securities and Exchange Commission. The San Francisco-based company has achieved a private-market valuation of nearly $1 trillion.

OpenAI also recently filed its S-1 with the SEC, although the ChatGPT parent said that it could be some time before it makes its public debut. The company, which is also based in San Francsico, could its latest funding round in March, giving it a private market valuation of $852 billion.

The emergence of the mega-IPOs is very much “uncharted territory” for markets, according to Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management. “We haven't ever seen IPOs come to market with these huge, trillion-dollar market caps before so, for us, a lot of the easy money has been made before the average investor can get any access,” he said, in a note released Monday. “We wouldn't be rushing to buy them given these huge market caps.”

“With that being said, if these big ones perform well, it will bring more IPOs to market and could be a banner year for the investment banks that are bringing them public, but can also signal additional investor euphoria,” he added.

The SpaceX IPO created incredible single-stock buzz, and indeed, FOMO. Todd Ahlsten, chief investment officer and portfolio manager at Parnassus Investments acknowledges that the opportunity to buy shares in the companies driving an innovative wave of AI capabilities is an exciting investment proposition, but also urges caution.

“It’s very unlikely we will participate in these high-profile IPO’s,” he said, in a recent note.  “While these IPOs represent important and potentially transformative companies, we need greater clarity on how durable their competitive advantages are, how profitable they can become over time and how much of that future growth is already built into the stock prices.”

Indeed, Ahlsten points to the drawbacks related to FOMO. “The excitement around these IPOs, combined with a limited number of shares available to trade, and the AI hype cycle, creates a backdrop where panic buying and FOMO could highly influence these IPO stock prices at the offering as they begin trading,” he said. “This increases the risk of paying an elevated price relative to each IPO’s current outlook.”