Analysts Are Starting To Pick Apart the Big IPOs. They're Not All Raging Bulls

Key Takeaways

• Anthropic filed IPO paperwork on Monday, setting it up to follow SpaceX, which is expected to hit markets in the coming weeks in a record-breaking debut.

• Morningstar analysts on Monday valued SpaceX at roughly half its most recent private valuation, and advised investors interested in owning the stock wait until the excitement around the listing dies down and more shares become available to trade later this year.

Another mega-IPO is officially in the works: AI lab Anthropic filed confidential IPO paperwork on Monday, setting it up to go public in one of the largest market debuts in history. That'll mean close eyes on the company's business—though those eyes are lately more focused on SpaceX, another high-profile listing due soon.

Anthropic last week announced a funding round that valued it at $965 billion, more than double its valuation in February and more than the most recent valuation of its closest competitor, OpenAI. The company is one of three mega-IPOs investors expect this year, with rival OpenAI reportedly preparing to file its paperwork in the coming weeks. They will both follow in the footsteps of Elon Musk’s SpaceX, which is aiming to raise up to $75 billion in a debut expected later this month. All three could be worth more than $1 trillion by the end of their first day of trading, a feat only achieved by Saudi state-owned oil company Saudi Aramco in 2019. 

With a public listing comes public scrutiny of a company’s business, and Wall Street is divided on what they’ve seen so far from SpaceX—even as index providers are working to create space for them as quickly as they can. Wedbush’s Dan Ives on Sunday called SpaceX’s impending debut “a watershed moment” for Musk and the technology sector as a whole. Ives argued SpaceX sits “at the center” of two industries—AI and space exploration—with a combined total addressable market of $28.5 trillion. 

Why This Is Important

Investor interest in SpaceX's IPO, expected later is month, is likely to be unusually strong considering its high profile, the scarcity of its stock, and Wall Street's hunger for new AI listings. The market's response to SpaceX's listing could set the tone for this year's other mega-IPOs: OpenAI and Anthropic.

Morningstar analysts issued a more cautious endorsement on Monday. They value SpaceX at $780 billion, about half its private valuation, and they outlined several reasons investors might be better off sitting out the IPO. A relatively small share of the company’s stock will become available to trade when it debuts, and Morningstar expects “buoyant investor appetite for AI infrastructure bids” and the stock’s expedited entry to major market indexes will create exceptionally strong demand around the IPO. 

“We expect SpaceX’s share price will likely survive separation and may even ascend, at least for a time,” the analysts wrote. But shares are likely to experience “max Q, the moment of greatest atmospheric pressure on a launch vehicle,” in the succeeding months as private investors and employees are given the opportunity to sell their stock in public markets. For that reason, they argue long-term investors will have opportunities to invest in SpaceX “with more margin of safety” down the line.

Morningstar isn’t a SpaceX bear. “SpaceX has established a demonstrable, durable, and widening competitive advantage” in its space and connectivity businesses, the analysts wrote. They also argued it’s “the only company that can launch enough satellites cheaply enough to make space-based data centers economically viable.” 

Risks, especially around the AI business, are substantial, according to Morningstar. Musk’s plan to launch a fleet of orbital data centers faces economic and technological hurdles that will be costly to overcome, if they can be at all. For Morningstar, SpaceX’s AI business—its largest area of investment but also its most precarious business—diminishes the stock’s appeal. 

Morningstar also recommended investors scrutinize SpaceX’s “capital-allocation history and corporate governance.” The merger earlier this year of SpaceX and Musk’s AI start-up, xAI, “offers potential synergies that remain unproven,” and exemplifies the risks of investing in a company controlled by one man. Considering Musk is expected to own 85% of SpaceX’s voting rights post-IPO, “minority shareholders will have severely limited ability to influence governance outcomes or challenge future transactions.”

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