Why IPO valuations, SpaceX’s included, may not conclusively capture the current state of AI play

The season of AI's IPOs begins this week with the SpaceX issue on Thursday to be followed up by Anthropic and OpenAI later in the year. The US will end a long IPO winter with trillion-dollar listings that raise questions over valuations. In a scenario of rising interest rates, AI companies need to access cheap public equity in order to sustain their cash burn. It feeds concerns about the AI bubble that has grown on too much venture capital chasing a technology yet to prove itself.

SpaceX was valued at $800 bn before it merged with xAI, when the needle moved up to $1.25 tn. After the IPO, SpaceX is targeting a market capitalisation of $1.75 tn. Anthropic's value climbed from $61.5 bn to $965 bn in just over a year. OpenAI is worth $825 bn, up from $29 bn in 2023, $157 bn in 2024, and $500 bn in 2025. Sustaining this valuation trajectory may become difficult once the companies cross the PE frontier. In each case, the listing price-earning multiple is set to be several times that of Nvidia, the most profitable AI company around.

Another set of more prosaic numbers indicates cash burn. xAI's revenue in Q1 2026 was $818 mn, and it posted a $2.47 bn operating loss. Anthropic is on course to post a $559 mn profit - its first - on revenue of $10.9 bn during the June quarter. OpenAI spent $2.22 for every dollar of the $5.7 bn it earned in the March quarter. AI's path to profitability essentially begins after public shareholders come on board.


This is where things get interesting. Each of these companies has been creative with corporate governance. SpaceX has gone down the supervoting rights route to ringfence minority control by its founder Elon Musk. Anthropic has tweaked its corporate holding to isolate Alphabet and Amazon, its principal backers, from boardroom supervision. OpenAI has dabbled in hybrid structures to ensure operational control stays with Sam Altman.

The size of these IPOs comes in handy to hoover in passive investments after listing. The IPO drought has allowed AI companies to demand - and be granted - immediate inclusion in indices, bypassing performance benchmarks. AI valuations, thus, remain unanchored from earnings over a period as companies duke it out. Anthropic's Claude is clearly outrunning OpenAI's ChatGPT, while xAI struggles with Grok. IPO valuations don't conclusively capture the current state of play.

Yet, Wall Street will bust a gut selling these giant IPOs. The market has been hard for years, and the sheer size of the listings could breathe some life into it. Structurally, IPOs declined with the rise of venture capital, which allows companies to grow much bigger before they list. Still, PE managers need to return money to their clients, and there is a limit to sitting on bloated portfolios.

They are more than willing to work with banks - which need the IPO business - to leave some money on the table for public investors. The record, however, shows valuations trump listing-day pops, and there is a wide body of opinion that investors would do well to wait a while before buying more into the AI story.

IPO season typically arrives towards the end of a bull market. Investments in AI have sustained the US stock market since the previous crash. Some other markets like Taiwan and South Korea are also booming on the fortunes of chipmakers. Absorbing extra stock from SpaceX, OpenAI and Anthropic will not pose any particular challenge, as long as the AI theme is intact. If that wobbles, some really big bets could unravel very quickly.

Getting investors on board AI means asking office workers to park their pensions in a technology that could cost them their jobs. It might be an acceptable bargain if they can see offsetting benefits. These AI IPOs do not offer such clarity. Yet, the trillion-dollar companies that will emerge from these listings will not materially affect investor appetite for the tech. A far bigger chunk of floating stock is available for AI investors. There are very few AI holdouts among top-tier US tech companies.

A celebratory tale is unfolding in AI IPOs that contains several risks. Pace of deployment will determine the handover of AI funding from investors to customers. The risks of the AI bubble popping are climbing with rising interest rates. Untested technology barriers like building data centres in space - something Musk has been voluble about - will have to be crossed.

Control of a significant technology in the hands of their founders could concentrate the market. AI developed through Chinese state support poses a challenge to the Silicon Valley-Wall Street model, and there is evidence that the former is catching up fast.

These IPOs will have changed the rules of the game between companies and shareholders. Companies appear to be on the better side of the deal, till they figure out where the money is coming from.