On the Road to the IPO of the Century, What History Says About the Odds of Making Money

The looming megadeals from SpaceX, OpenAI and Anthropic are raising a question that is increasingly preoccupying investors on Wall Street: should they rush into the stock on the first day of trading, or wait on the sidelines? History offers little encouragement. It suggests that waiting is the better choice.

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Public sentiment and the amount of capital entering a company can create initial overvaluation, and history shows that comfortable, more settled entry points often appear several months, or quarters, after the dust from the first trading days settles. A study conducted by Eve Boboch, Cathy Donnelly, Eric Carroll and Kurt Dale, published in the book “The Lifecycle Trade,” found that more than 90% of IPOs at some point trade below the low recorded on their first trading day. Even when the stock later recovers, the process can take a long time. For example, after Facebook’s IPO on May 18, 2012, the stock fell 54% from its high to its low, and ended its first trading year down 32%. During that period, the S&P 500 rose by about 10%.

Spotify, which went public on April 3, 2018, struggled to gain momentum. By December of that year, the stock had fallen nearly 50% from its high of $198.99. Keith Lerner, chief investment officer at Truist Financial, examined 30 of the largest recent IPOs and found that returns tend to be negative both over six months and over 12 months. In most cases, sharp declines are also recorded during the first year of trading. Two key points from Lerner’s analysis: the average return over six months and over 12 months for those 30 IPOs is a decline of about 9%. Even over a three-year horizon, the data show that buying shares on the first trading day and holding them for three years usually produces a return well below the market’s return over the same period.

Rare assets with a unique status

Some say this time it is something entirely different. The three companies heading to Wall Street are no longer just big technology IPOs, but companies of almost systemic importance to the capital market. SpaceX, which is seeking to raise $75 billion at a valuation of about $1.8 trillion, could become the largest IPO in history. At the same time, Anthropic filed a confidential IPO application in early June at a private valuation of about $965 billion, while OpenAI filed a similar request after its latest funding rounds valued it at about $852 billion. Altogether, this represents a pipeline of IPOs with a combined value of about $3.6 trillion.

Such volumes explain why many on Wall Street believe comparisons with past IPOs may be misleading. “These IPO giants will quickly take a significant share of stock indices as well as the attention of retail investors,” said Max Gokhman, senior vice president at Franklin Templeton Investment Solutions. However, it is important to be precise: these companies will not automatically enter the S&P 500 on the day of the offering. Entry into the index requires meeting a series of criteria and approval by the index committee. Even SpaceX, if it does go public at a valuation of $1.8 trillion, will not become part of America’s leading index, the S&P 500, overnight.

On the other hand, it is expected to be included quickly in various Nasdaq indices and attract demand from ETFs, technology funds and institutional investors who will want exposure to the company from day one.

Beyond their size, the three companies enjoy a unique status because they sit at the heart of the hottest trends in the market. SpaceX is identified with the emerging space economy, while OpenAI and Anthropic are seen as leaders of the artificial intelligence revolution. For many investors, these are companies that are shaping entire industries, not merely participating in them.

The excitement is already visible on the ground. “I have never been asked so much about an IPO as about SpaceX by private clients and our advisers,” Matt Stacki, chief equity investment officer at Northwestern Mutual Wealth Management, told Bloomberg. However, he admitted that the level of interest is also “a little concerning” from a risk-management perspective.

And that may be the central point. On one side stands history, which shows that even excellent companies can disappoint investors after an IPO, especially when expectations are too high. On the other side stands a new narrative, according to which the new listings are no longer just large technology companies, but rare assets with an almost unique status in the capital market. So the question is not only when to buy these stocks, but whether this is simply another wave of enthusiasm around technology IPOs, or the beginning of a new category of public companies, one that could reshape the market for years to come.