What IPO really stands for and whether you should be buying SpaceX and the AI giants

Should you be chasing shares of SpaceX? How about Anthropic and OpenAI if and when they go public later this year? To get to an answer, let’s explore the various meanings of “IPO”. These three letters – I, P and O – excite emotions like few others in finance.Elon Musk’s rocket company launched an initial public offering this month that has made Musk a trillionaire while instantly minting millions and even billions for many of his friends and employees.Now, investors are salivating over more blockbuster IPOs that could land in the months ahead: OpenAI, Anthropic, Databricks and Anduril among them.

Yet history shows that buying into public debuts routinely brings more failure than success.Beware the hype.Current aspirants sport flashy Silicon Valley and artificial intelligence themes.

Their arrival isn’t a coincidence: Tech and AI sentiment has run hot for many months.Founders and early investors want maximum benefit when selling ownership stakes to the public.

Enthusiasm juices prices.This creates a tension: Founders crave selling high, while IPO buyers crave getting in low.Which group likely knows more about these firms? Add in investment banks’ splashy marketing roadshows and the knowledge divide broadens.

Hence what I detailed in my 1987 book The Wall Street Waltz: “IPO” actually stands for “It’s Probably Overpriced.”Yes, some IPOs leap early like SpaceX, as investment banks misjudge demand and shortchange sellers and the firm.Ideally, the first day should be flat—rare! But still rarer, history shows, are IPOs that live up to their hype in the longer term.Let’s consider a few stats: Since 1990, 52% of newly listed firms lagged the S&P 500 their first month by a median -0.3%.

Three months out, both metrics worsened – with 60% lagging by a median -5%.Six months? A clear pattern is emerging and it isn’t pretty – with 63% lagging by a median -11%. A year and two years out, it’s even worse with the lag rate nearing...