OpenAI, Anthropic, and Databricks lead a new class of super-sized private companies eyeing public markets.
The US IPO market has never seen a trillion-dollar debut. That may soon change as a wave of mega-valued private companies considers tapping public markets, which are eager for fresh stock.
Behind the headlines about the potential Elon Musk IPO from the newly merged SpaceX and xAI is a class of potential mega-sized deals currently valued in the hundreds of billions, supported by a thriving ecosystem for funding big companies in private markets.
SpaceX’s private market valuation is estimated at $1.25 trillion, placing it ninth in the S&P 500. That’s just below Tesla’s $1.5 trillion valuation and ahead of Warren Buffett’s Berkshire Hathaway ($1.1 trillion) and Walmart ($1.05 trillion).
If Musk succeeds in taking SpaceX public this year, it will likely sell about 10% of its equity in the IPO, raising $125 billion. That figure would handily exceed Saudi Aramco’s IPO proceeds of $29.4 billion, the largest global IPO ever, and Alibaba’s IPO proceeds of $21.8 billion, still the largest ever in the US since its 2014 debut.
“There is no precedent for an IPO this large,” Morningstar passive strategies analyst Zachary Evens said in an email to Global Finance. “I am interested to see if index providers make exceptions for mega IPOs since they will instantly reshape the market.”
Nasdaq is considering a special “fast entry” rule that would allow a company to join its flagship index after its first 15 trading days, he said.
Meanwhile, OpenAI is currently valued at about $500 billion. That’s roughly double Alibaba’s $236 billion enterprise value, the current record holder for a US IPO, when it went public in 2014.
Anthropic, the company behind the Claude AI service, is valued at about $374 billion — also bigger than Alibaba — and business software specialist Databricks tips the scales at $134 billion.
These companies also dwarf the $81 billion valuation of Facebook at its 2012 IPO or the $75.5 billion market cap of Uber Technologies at its 2019 IPO.
To be sure, it’s possible that the sky-high valuations of these private companies could take a big hit amid uncertainty on Wall Street about whether unprecedented spending on AI will pay off. The window to take companies public slammed shut in April of last year after the launch of the US’s Liberation Day tariff regime. And it could do so again if the recent tech selloff driven by AI jitters continues.
While the companies are part of an ecosystem that developed and grew in the years following the Financial Crisis, they’ve never experienced a severe recession or a bubble burst, such as the dot-com meltdown of 2000-2001.
Still, after a sluggish IPO market in recent years and the dwindling number of listed companies due to take-private and other merger deals in the marketplace, brokers remain hungry for more public stock, said Mark Lehmann, vice chair of the commercial bank at Citizens Financial Group.
“There’s a whole host of people who will want exposure to these companies,” he said, including institutions, wealthy individuals, and retail investors.
Kaush Amin, managing director and head of private market investing at US Bank, said that valuations of some AI companies assume widespread use of their products within five to ten years. That’s much faster than the 70 years it took for the Industrial Revolution to diffuse across the U.K. and the 25 years it took for the internet to take hold across the economy.
Some pockets of the tech sector are very overvalued because the numbers may not reflect the infrastructure support AI needs and how long it may take to build and be adopted across the economy. There’s a need for capex funding, data centers, chip purchases, and power purchases. This all takes time and money.
Other than Nvidia or other large strategic players – maybe Softbank, for example – there aren’t many players out there that can write big enough checks, Amin said.
While the debate continues over how these and other unicorns will fare after going public, the private capital ecosystem continues to grow.
Morgan Stanley acquired EquityZen, a private markets brokerage, and folded the business into its investment portfolio for its wealthy clients. The deal will also enable the bank to help sell private stock earned as part of a client’s compensation package. Charles Schwab has similar plans with its acquisition of Forge Global.
David Shapiro, co-founder and CEO of OpenVC, which helped create the NYSE OPEN Venture Capital Unicorn Index, said investors are eager to secure stakes in companies before they go public – but they should be aware that fees may be much higher in some cases and that once an IPO debuts, it may fall flat.
“Sometimes, by the time these companies go public, all the juice has already been squeezed for investors,” said Shapiro. This is a reason to invest in companies before they go public — to realize bigger gains. The companies in the index alone add up to an addressable market of about $2 trillion or more, at last check.
“People are hungry for these assets,” he said.
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