▶ Full Post Text
Hey Guys :)
With multiple record breaking IPOs happening this year, I thought I would take a few hours to publish a piece about IPOs. In the end, it took me dozens of hours to research, write and edit.
I would greatly appreciate if you guys read and give thoughts, sorry about the lack of pictures and graphs, and a bunch of footnotes are missing as it is originally written for Substack. Think it has some valuable content about whether this years IPOs are a good potential investment!
Thank you in advance for reading and would love to hear thoughts.
**The Year of IPOs.**
2026 will likely see four of the five largest IPOs in history. SpaceX and xAI’s combined merger may likely become the largest IPO ever as they are currently valued at $1.75 trillion. Next come the LLM giants, both OpenAI and Anthropic are currently planning to go public this year with a combined value of $1.2 trillion dollars between them. Finally come Stripe and DataBricks, both valued at well over $100 billion dollars which would put them comfortably among the top seven public listings in history. Overall, there will likely be over $3,000,000,000,000 added into the stock market through these five companies. Do IPO’s outperform the market historically? Are these companies good investments? What is the historic precedent for massive IPOs? All these are important questions that we will go over in this article.
This piece took me dozens of hours to research, edit and publish. If you do enjoy it, please consider subscribing. Thank you :)
*What is an IPO?*
An Initial Public Offering or an IPO for short is when a company goes public on the stock market after a period of private funding. This allows those who have invested early into the company to monetize and potentially sell out of their investment and at the same time allowing new investors to invest in companies that were previously unreachable to them. Investing after a company goes public is both risky and can potentially give massive returns. Some companies go public relatively early, like Apple who went public only four years after the company was founded while others take much longer, like Goldman Sachs which was founded in 1869 and only went public in 1999.
*The Companies:*
Before we begin to look at whether investing into these companies is a good idea, it’s important to do a brief explanation about the companies.
SpaceX was founded in 2002 by Elon Musk and it is an investment into space future. They design, manufacture and launch advanced rockets that go to the atmosphere and to Mars. In addition, its Starlink system which provides high speed internet using satellites is its main revenue stream, reporting over $10 billion in revenue in 2025. Recently, SpaceX merged with xAI which has changed them from only a space play to a AI/Space/Data conglomerate. With SpaceX you get to invest in the future while also having a tangible revenue stream today. Next, are OpenAI and Anthropic, two large language models (LLM) founded in 2015 and 2021 respectively. OpenAI is the company that runs ChatGPT, the LLM that changed the way we live today while Anthropic is a newer competitor which currently is leading the AI space in many aspects including coding. DataBricks, founded in 2013 is a cloud based platform that enables companies to process data, build models and more efficiently run their businesses. Lastly Stripe, built in 2010 is a leading fintech company that allows businesses to accept online payments. They are used by businesses in order to accept different payment methods such as Apple Pay or Google Pay.
*Spray and Pray:*
Is mass investing in IPOs a good strategy? In order to test the strategy lets take a look at one of the most successful years of IPOs - 1980. 1980 was a very successful year for IPOs and 234 companies went public. Many are names that you wouldn’t recognize today, Magnuson Computer, Denelcor and many more all went bankrupt within five years or less. But a couple of the companies that went public in 1980 did well. Really well. Apple went public in 1980 at a valuation of $1.78 billion. Another company that you have probably heard of also went public - Nike. Nike went public at a $400 million valuation. A dollar invested into Apple in 1980 would now be worth approximately $3,450. That same dollar invested into Nike would now be worth around $1400. A few other companies who went public in 1980 have also done very well. A dollar invested in Genentech would now be worth $45 and if you invested in Arrow Financials it would be worth $34. Overall, if you invested $234 into the 234 companies that went public in 1980 would have ended with around $7580- around 32 times your initial investment. While these seem like incredible returns, that same $234 would actually be worth $37,440 with dividends reinvested, an increase of 160 times. So investing in the S&P would have given you significantly better returns, despite the fact that you managed to pick a year where two of the most successful companies ever went public.
A picture of Steve Jobs, John Sculley and Steve Wozniak at an event in San Francisco in 1984. Steve Jobs is holding the new Apple IIc - the c standing for compact despite needing a monitor to use.
But a fair critic may say that this isn’t fair. Currently, people considering investing in IPOs are mostly considering investing in the biggest companies. The reason why the S&P’s returns have beaten the 1980’s IPO market is because a majority of those companies went bankrupt. But what if you invested in only the five biggest IPO listings of that year?
*The Big Five:*
Well, the five biggest IPOs in 1980 did well. Really well. They included Apple, Nike, Genentech, GCA Corporation and Tellabs. If you invested $100 into all five of those companies, it would currently be worth around $300,000, a 1000x return. 98% of these returns are fueled by two companies, Nike and Apple. The investments into Genentech, GCA Corporation and Tellabs would be worth a total of $19600 - or 196x your investment, slightly edging out the S&P who returned 160x in the same time period. As such, $500 invested in the S&P instead would be worth a total of $80,000. Overall, due to Nike and Apple you would have greatly outperformed the S&P. There is an important caveat here. Apple’s stock from 1980 to 2003, increased by only 3x. Almost all of Apple’s growth has come in the last 23 years since 2004. Would you have had the conviction to hold through 23 years of losing to the S&P? Perhaps, it would require massive conviction in Apple. Definitely something to keep in mind when investing in single stocks.
Ok, but 1980 was an incredible year for IPOs. What about years that don’t have an Apple?
1981: In 1981, none of the five biggest IPOs stood out and you would have around $20,000 from your initial $500 investment. Interestingly, one company that did go public in 1981, Home Depot has actually shockingly way outperformed the market and even outperformed Apple. $100 invested into Home Depot would be worth $1.2 million today. But unfortunately, it wasn’t part of the five biggest IPOs of 1981 meaning you would have missed out on it.
1982: Again, all five companies would have given very small returns. Your $500 investment in 1982 would now only be worth around $6,500 today. You still would have made a very good investment in comparison to holding cash, but you would have massively underperformed the S&P.
1983: Another year of subpar returns continues. Your $500 in 1983 would now be worth $5700. Again, your money would have multiplied by a factor of 10 but for a 43 year long investment you would have massively underperformed the market, especially as the S&P returned over 14x the amount.
1984: More of the same, subpar returns. You once again severely underperform the S&P. A positive take away is that any money invested would have returned significantly more than any money not invested. Still, this year was truly a disaster with you only walking away with a little over $2000.
Overall, in the first year of the 1980’s you would have overperformed the S&P while in the following four you would have underperformed. Overall, your $2500 invested would be worth approximately $340,000 instead of $400,000 invested in the S&P. You would have very slightly underperformed the S&P despite successfully investing in both Apple and Nike.
*The Rest of the 1980’s.*
While I won’t continue about every year since 1985, some notable companies that were in the top five of the second half of the 1980s are: Costco, Autodesk and Best Buy in 1985, Microsoft, Oracle and Adobe in 1986. Interestingly, $100 into Costco, Best Buy, Microsoft, Autodesk, Oracle and Adobe all would have outperformed a $500 investment into the stock market in their respective years by themselves. In total, six of the twenty five companies today would have beaten the S&P in the same year with one - Microsoft massively outperforming the S&P. Amazingly, a $100 investment into Microsoft would be worth today $460,000, outperforming the entire S&P for a five year stretch and an initial investment of $2500. What’s important to note is that I didn’t pick the five most successful IPOs of each year, rather the five companies with the highest initial valuations when they went public. So while there definitely is no guarantee that you will beat the S&P if you invest in IPOs and it most definitely is a gamble, sometimes the gamble would pay off. Personally, after doing research into the history of the companies going public in the 1980’s, I am seriously considering investing myself $100 into the top five companies that have gone public in 2025 and onwards. It’s not an amount that will make or break my bank account, but if it could potentially be a massive hit down the line. The key is, not selling no matter what, as mentioned before, Apple made the vast majority of its gains over twenty years after the stock initially went public. Someone who sold after twenty years of holding would have massively underperformed the S&P from 1980-1984.
*The Valuations:*
While many of the companies listed above were very big when they went public, none of them were anywhere close to SpaceX in terms of valuation, even adjusted to today’s modern economy. SpaceX today would instantly become somewhere between the seventh and eleventh most valuable company in the world. OpenAI would also immediately be around the 15th biggest company in the world and Anthropic would also be in the top 303. All of these companies are already massive and it’s hard to imagine no matter how successful SpaceX is that its valuation can jump the same amount (2500 times) as Apple’s did. If it did, SpaceX would have a valuation of $4,375 trillion or $4.375 quadrillion, an unimaginably large number. While this seems crazy while writing, interestingly enough, in 1980, the stock market crossed $1 trillion in valuation for the first time and today Nvidia is worth $4.5 trillion, roughly four and a half times as valuable as the entire stock market was in 1980.
Anyways, that’s enough abstract valuations for now, what’s important to note is that it is hard to imagine companies with a starting valuation that is so high growing at such a fast rate. What is incredible about investing in the S&P is that even if SpaceX grows to a valuation of $250 trillion dollars in the next 45 years they will still have underperformed the S&P. $100 in the S&P would be worth 16,000 while the SpaceX investment would be worth roughly $14,250. These would be considered incredible returns and a huge success for SpaceX, returning over 100x the original investment to their investor and yet they would still be in a league with the S&P. This shows how incredible of an investment the S&P500 really is, fully passive. The other companies obviously have more room to grow as they are smaller but it is important to note that they also all carry valuations that are well over $100 billion.
*The IPOs of 2020 and 2021.*
It’s also important to note that the 1980’s were 40 years ago. While this information may be relevant for conservative young investors who are debating investing and letting their money compound for decades, what about more recent data, how have those companies fared?
If you initially invested in the five biggest IPOs of 2020 by valuation, you would have invested in: Airbnb, Snowflake, DoorDash, Lufax and Palantir. You invested in four stocks that are down and one big winner, Palantir. If you invested $100 into each of these four stocks you would have $88 from AirBNB, $71 from Snowflake, $81 from DoorDash, $4.50 from Lufax, and $1510 with Palantir. Your overall investment of $500 would have been worth $1754. Assuming you invested $500 instead into the S&P, your current investment would have been worth around $1000. With the help of Palantir, you managed to beat the S&P by a significant amount. Again it is important to note that for the first three years after Palantir went public the stock was flat. It is important when considering investing in IPOs, will you have had the patience to hold? If not you might invest in Apple or Palantir, but you probably will also sell them before making any money.
We will look at one more year, 2021. This is now a five year time horizon. 2021 saw a number of large companies go public. Assuming you invested $100 again into each of them, you would have invested in: Didi Global - worth $24 today, Rivian - worth $15, Coupang - worth $37, Nubank - worth $112 today and Coinbase - worth $58. A total investment of $500 would have returned you $246. Meanwhile, the S&P in the last five years has returned 70%, so an initial investment of $500 would today be worth around $850. Interestingly enough, $1000 invested in 2020 and 2021 into IPOs would be worth $2000, worth slightly more than the $1850 invested into the S&P. What will be ahead in ten or twenty years? Only time will tell.
*The Five Biggest IPOs ever.*
Before finishing, I want to look at some of the biggest IPOs ever to see how they have fared. Saudi Aramco has the highest valuation ever, initially going public at $1.7 trillion in 2019. Today, despite a good year so far, they are worth 12% less than what they were worth in 2019. Alibaba is the second largest IPO ever going public in 2014. Today, they are worth 44% more, significantly underperforming the market that has gone up over three times in that same time period. Meta, the third largest company ever to go public in 2012 has had incredible returns. If you bought the $38 stock in 2012, it would now be worth $613, a staggering 1500% return in only 14 years. Next in 2006 came at the time the world’s largest ever IPO, ICBC - or the Industrial And Commercial Bank Of China. That investment has gone up 123% all time, dwarfed by the over 500% returns you would have gotten from the S&P during those same years. Finally, the Agricultural Bank of China which went public in 2010 would have returned 800% on your investment, narrowly beating out the S&P which returned 600% in the same time. Overall, you would have invested in two winners and three losers when compared to the market. Note, that almost no matter when you invested in the S&P 500 you would have made money assuming you held for over 10 years, likely in a much more convincing manner and with a lower likelihood of selling.
*An interesting study:*
Lucky for me, I wasn’t the only one interested in investing in IPOs in 2003, Professor Jeremy Siegal looked at 9000 companies that went public between the years of 1968-2001. He found that four out of the five stocks lagged the small cap market meaning you had a 80% chance of not beating the market. He found that in 29 out of the 33 years investing in the broader market would have outperformed investing in IPOs. In his book published in 2005 “The Future for Investors”, he concluded that “**IPOs generally underperform the broad stock market in the long run**.” This is largely due to overpricing at IPOs. A company will go public when the most hype and traction is behind it resulting in the best result for the company rather than investors. This causes high pricing from investment banks leading to overvaluation. He also did find that 10% of companies that go public can become massive winners as we saw in this article.
*The Lock Up Nuance:*
There is an important caveat that can hit retail investors who invest early into IPOs. While you personally are able to sell the stocks you bought whenever you want, often early investors are not. Early investors often have a “lock up” period between 90-180 days where they have to hold on to their shares for a certain amount of time. For example, Rivian, the EV company that went public in 2021 had a 180 day lock up period. The day after the lock up period ended, the stock fell around 20%. For early investors who saw the stock drop to half the value that it had IPOed at, they will often want to sell their stake before the stock potentially continues downwards. This drop is caused because the stock is suddenly flooded with supply, as early investors and employees of a company can finally sell their shares. Even if the stock is doing well, an investor may want to diversify his portfolio or even want to cash out and finally buy that new house he was looking at. Either way, the unlucky retail buyer will be the last to know. A potential workaround is to split your entry, i.e. to buy $50 at IPO and $50 after the lock up period is over. You often will be able to buy more shares with the same $50 then you were half a year prior.
*The Debate:*
If you managed to get to the end of this article, well done. I didn’t expect it to be this long and take almost a week to research but I am happy it did. My overall conclusion is that investing in IPOs is a risky business and even though you might pick some winners, many people would likely sell before those winners return the gains they would have wanted to see. There were likely people who bought Apple in 1980 and after 20 years and tripling their money, felt content to sell and move their money into the S&P. Warren Buffett once said that it’s not his brains that put him ahead of other investments rather his temperament. If you invest in IPOs, be ready for a lot of them to fail and be patient with the ones who do. The problem is not finding the next Apple, it is holding it for 40 years. If you are patient, who knows, one of them could rebound and be the next Palantir. If you don’t want to deal with the headache, invest in the market and hold, you should be able to successfully compound your money over time. Either way, make sure to invest, my biggest takeaway from all this research was how much money invested compounded, no matter when it was invested. $100 invested the night before Covid shocked the stock market would still be worth $200 today, less than five years later. Invest, and if you want to, maybe look at IPOs, either way, this should be an interesting year in the stock market.
***Disclaimer:*** *For those of you reading this, remember I’m sharing my personal journey and opinions, not professional investment picks.*