With one mega deal successfully completed, ECM bankers are now turning their attention to the other two colossal IPOs in the pipeline, with growing expectations that AI labs Anthropic and OpenAI could follow SpaceX in going public as soon as autumn.
The almost seamless public debut of SpaceX, which raised US$86.2bn in primary proceeds following the exercise of the greenshoe – almost three times larger than any previous IPO – has given ECM bankers the confidence they need to plough ahead with the other two deals undeterred.
Resilience in demand, especially among high-net-worth individuals and retail clients, provided hard evidence for the enormous amount of capital looking for exposure to AI. Final demand of roughly US$350bn meant that more than three-quarters of the total orders went unfulfilled.
“There’s a lot of liquidity out there – everyone wants exposure to the AI ecosystem,” said Gregor Feige, co-head of Americas equity capital markets at UBS in San Francisco and one of the lead bankers on the international component of the SpaceX deal.
He said the IPO market was as bifurcated as he could ever remember, with the market effectively shut for companies in some industries like software – but wide open for a handful of companies seen as the vanguard of a potentially transformational new technology.
“There’s plenty of capital available but it’s being deployed into a relatively small number of large opportunities,” said Feige. “I think all of these companies – to some extent – are going to be must-own assets, and ones that people need to have exposure to in their portfolio.”
Imitation game
The three companies are very different, however – and those differences are likely to have a bearing in how deals are run. While the SpaceX listing offers a tried-and-tested formula for OpenAI and Anthropic to copy, there were elements to its IPO that are unlikely to be imitated.
The decision to fix the offer price at US$135 is one. While bankers say the decision streamlined the process on such a large deal – focusing attention on filling the order book at a fixed price rather than gauging appetite at various levels – they admit it came at the expense of real price discovery.
For Elon Musk, who has taken an aggressive approach to private fundraising rounds in the past – often zeroing accounts that had sat out earlier rounds – that might work. But bankers say Anthropic CEO Dario Amodei and OpenAI CEO Sam Altman are much more likely to opt for a systematic process of price discovery.
One thing that is unlikely to change, however, is the heavy retail component – and its international composition. About US$100bn of orders came from retail accounts across the world (although those in South Korea were controversially zeroed), emphasising the importance of having local banks mandated, even it doesn’t lead to future business.
“There’s a temptation to see AI IPOs as the main prize, but for European banks they are more of a headline than a profit opportunity,” said Johann Scholtz, an analyst at Morningstar. “The economics on these deals are narrow, with fee pools concentrated among a small group of US banks.”
“European banks are present but typically sit in second or third-tier positions within syndicates, which significantly limits their share of the underwriting fees. That dynamic is unlikely to change in the near term, where established relationships and distribution strength favour US institutions.”
Unanswered questions
SpaceX has performed well in its first week. After a 19% pop on its first day of trading on June 12, SpaceX shares rallied again at the start of the week, giving the company a market capitalisation at the close on Tuesday of US$2.66trn – briefly outranking Amazon – before shedding some of those gains. In related news, SpaceX looks to be planning a US$20bn bond to take out a similarly sized bridge loan.
But bankers might be wise to give the SpaceX deal some time before making firm conclusions about its success – or otherwise. There are many unanswered questions that will only become apparent in the months ahead, which may trigger a major rethink about the other IPOs – or scupper them entirely.
One is just how much capacity the SpaceX listing sucks out of the wider market. While the total order book for the deal was solid, it came against the backdrop of sharp volatility in some markets such as technology stocks and cryptocurrencies, indicating a certain amount of rebalancing is underway.
That rebalancing is yet to fully play out, with SpaceX set for inclusion in major indices over coming weeks. With these three deals having the potential to add between US$4trn and US$5trn in market capitalisation and free-floats of between US$200bn and US$300bn, the effects could be pronounced.
“Capital always needs to be sourced from somewhere, so we are watching key liquidity indicators,” wrote analysts at New York Life Investment Management. “Market impact is less likely to come from a single listing day event and more likely to build over time as the stock becomes eligible for additional indexes, passive funds adjust their holdings, and benchmark ownership expands.”
The overhang of expiring lockups is also likely to add to that dynamic. While Musk is locked in for one year, others will be allowed to sell 20% of their holdings two days after second-quarter earnings are published, probably in late July. That will likely test the depth of underlying demand for the stock.
Increased scrutiny
Then there is the potential for an upset over earnings. With increased scrutiny around the company actually hitting its targets – rather than the lofty dreams and aspirations the deal was sold on – there is the potential for an abrupt reversal in sentiment that could derail the other deals.
“Raising the money is, typically, the easiest part,” said Nigel Green, chief executive of advisory firm deVere. “The real test begins on day one of life as a public company. Private investors can back a vision and wait years for results. Public markets rarely offer that luxury.
“Once listed, every quarter becomes an examination. Investors want evidence. They want growth, margins, execution and progress. Expectations that seem manageable in private markets can become relentless under the glare of public ownership.”
History has a sobering list of big-name casualties that saw their share price dip well below the issue price in the first few months after listing. Facebook, now Meta Platforms, lost more than half its value within weeks, Uber Technologies fell 70% in 10 months, while Pets.com was bankrupt less than a year after its IPO.
“Some of the most celebrated IPOs of the modern era suffered sharp falls after going public,” said Green. “Initial euphoria can fade remarkably quickly. Companies often discover that maintaining investor confidence is harder than generating it.”
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