This unprecedented wave of IPOs is not only the ultimate stress test of AI investment logic but will also become the biggest variable in the direction of risk assets this year.

Written by: Dong Jing

Source: Wall Street View

A feast of IPOs comparable to the peak of the internet bubble is taking shape. Three AI giants, OpenAI, Anthropic, and SpaceX, are rushing to the public market, each aiming for a valuation of over a trillion dollars, together large enough to reshape the landscape of the U.S. stock market. This unprecedented wave of IPOs is not only the ultimate stress test of AI investment logic but will also become the biggest variable in the direction of risk assets this year.

On May 22, according to a report from Wall Street View, OpenAI has prepared to secretly submit an IPO application to the regulators, with the potential for it to go public as early as September this year, aiming for a valuation exceeding one trillion dollars and raising approximately 60 billion dollars, which would more than double the IPO record set by Saudi Aramco in 2019 of 25.6 billion dollars.

At the same time, competitor Anthropic is also advancing its own listing plan and has disclosed that its revenue for the second quarter is expected to double compared to the previous quarter to 10.9 billion dollars, likely achieving operating profits for the first time in a quarter. Deutsche Bank pointed out in its research report that the way these two IPOs are launched "may very well become a significant swing factor for the direction of risk assets this year" and is a macro theme that needs to be closely monitored.

However, beneath the shiny valuations, the financial situations of the two companies are drastically different. OpenAI reported a revenue of 5.7 billion dollars in the first quarter, but its adjusted operating profit margin was -122%, meaning it lost 1.22 dollars for every dollar of revenue generated, and it is expected that positive cash flow may not be realized until 2029 to 2030. Anthropic, on the other hand, reported revenue of 4.8 billion dollars in the same period, with the second quarter expected to jump to 10.9 billion dollars and an estimated operating profit of approximately 559 million dollars, having already reached the threshold for profitability.

Analysts have pointed out that despite competing on the same stage, the two companies present completely different business logics, posing a rare choice for public market investors.

The Largest IPO in History: How Shocking Are the Numbers

Deutsche Bank's research report noted that whether it is OpenAI or Anthropic, the scale of each IPO will exceed twice the fundraising amount of Saudi Aramco's 2019 IPO; even after adjusting for inflation, it will easily become the largest IPO in history.

In another research report, Deutsche Bank stated that if OpenAI achieves a target valuation of over one trillion dollars, it will become the 14th largest company in the world by market value, just behind Berkshire Hathaway, surpassing Eli Lilly.

In contrast, Berkshire had over 370 billion dollars in revenue last year and a net profit of 67 billion dollars; Eli Lilly had sales of over 65 billion dollars and a profit of 21 billion dollars. Meanwhile, OpenAI has yet to achieve profitability, with an annualized revenue of about 30 billion dollars and only a few thousand employees.

From the market capacity perspective, Deutsche Bank believes that the current total market value of the U.S. stock market is about 70 trillion dollars, five times that of the peak of the internet bubble, indicating a significantly stronger market absorption capacity than at the end of the 1990s.

At that time, there was an average of nearly 500 companies going public each year, whereas this decade averages only about 120 companies, and the listed companies are generally more mature now.

Additionally, the 60 billion dollar scale of a single IPO is just slightly lower than the total U.S. IPO fundraising amounts for the entire years of 1999 and 2000 (both about 65 billion dollars), equivalent to half of the record 119 billion dollars in 2021.

The "Suction Effect" of Giants and the Great Movement of Passive Funds

As these giants move toward the public market, their liquidity suck-out effect on the U.S. stock market has caused heightened vigilance on Wall Street.

The simultaneous IPOs of SpaceX, OpenAI, and Anthropic, combined with the Nasdaq's newly implemented "fast-track indexing" mechanism, are brewing an unprecedented great migration of passive funds, namely the suction effect of AI giants.

According to a report from Wall Street View, JPMorgan calculated that if SpaceX's target valuation reaches 2 trillion dollars and 50% of its shares become tradable, passive funds will have to sell about 95 billion dollars of existing holdings in the eight major tech stocks on Wall Street (Nvidia, Apple, Microsoft, Amazon, Google, Broadcom, Meta, Tesla) to make room for the new purchases.

Strategas's chief ETF strategist Todd Sohn pointed out that since the initial public offering typically only has a 5% float, but ETFs track assets worth tens of trillions of dollars, this extreme supply-demand imbalance will cause the index inclusion process to be "slightly crazy," forcing passive investors to buy high.

Syz Group's trading head Valérie Noël stated that the market has begun to bet that existing large-cap stocks are under pressure to decline.

According to information disclosed on March 28 of this year, OpenAI's public listing will be a substantial referendum on the entire AI investment logic. This information shows that OpenAI's revenue in 2025 will reach 13.1 billion dollars, but it is expected to have a net loss of 14 billion dollars in 2026.

At the same time, OpenAI has committed to investing about 1.4 trillion dollars in infrastructure construction before 2033. If S&P Global, FTSE Russell, and Nasdaq adopt fast-track inclusion rules, it may immediately force about 24 billion to 48 billion dollars of passive funds to buy in post-IPO.

Facing such a massive reorganization of funds, ordinary investors, whether active or not, will have their portfolios passively reshaped with changes in the rules.

Deutsche Bank's research report indicated that the nature of how these IPOs are launched will be a major swing factor in the direction of risk assets this year. PitchBook's analysis was even more straightforward:

A "systemic quality inversion" has emerged in the private equity market — the companies with the highest valuations score the lowest on the business quality metrics that are actually priced in the public market.

For ordinary investors holding index funds or ETFs, this contest is difficult to be excluded from: whether actively involved or not, their portfolios will be passively reshaped as the index rules change.

For active investors, when the S-1 filings are made public and all financial secrets are laid bare, the market will face a clear choice: to believe in a company that has already found its profitable model or to place faith in a giant asking the market for a few more years and several billion dollars to explore the possibilities of profitability?

The answer will determine whether this frenzy is the starting point of a new cycle or the last dance before the feast ends.

Fire and Ice: Anthropic's Profitability and OpenAI's Huge Losses

Despite the soaring valuations, the financial conditions of these two leading AI companies present radically different pictures. Anthropic has started to turn a profit, breaking the conventional notion that huge expenses for AI companies would drag down near-term profitability.

According to a report from Wall Street View, on Wednesday local time, the Wall Street Journal reported that Anthropic's revenue is expected to more than double in the second quarter to 10.9 billion dollars and achieve approximately 559 million dollars in operating profit.

Anthropic's gross margin has jumped from 38% to over 70%. Its CEO Dario Amodei jokingly mentioned that the revenue growth has become "too difficult to handle."

The company's success is largely attributed to the explosive demand from corporate clients for its programming tools, with approximately 85% of revenue coming from enterprise and developer clients, a model that demonstrates clear willingness to pay and low service costs.

In contrast, OpenAI is still incurring losses.

According to Wall Street View, data shows that OpenAI reported revenue of 5.7 billion dollars in the first quarter, but its adjusted operating profit margin was -122%, meaning it lost 1.22 dollars for every dollar earned.

About 85% of OpenAI's revenue is related to ChatGPT consumer subscriptions. Despite having 55 million paying users, it has over 900 million weekly active users, and the vast free user pool incurs substantial reasoning costs.

OpenAI is expected to achieve positive cash flow in 2029 or 2030, while its CEO Sam Altman and application business CEO Fidji Simo are trying to shift the focus towards commercial customers who can generate direct revenue.

In terms of IPO narratives, the two companies tell entirely different stories. Anthropic has verifiable quarterly profit data, its story can be compared to that of Salesforce or ServiceNow, with the logic of being an enterprise software company.

OpenAI, on the other hand, needs to convince the market that AI entities, image generation, and even advertising businesses will eventually convert the huge consumer traffic into profits.

In Sam Altman's vision, by 2030, the advertising business of ChatGPT could bring in about 102 billion dollars in revenue, but that will take time, and time is precisely the most scarce resource for OpenAI as it trades losses for growth.

The Gathered IPOs of AI Giants: Is It Essentially Passing the "Hot Potato" to Retail Investors?

According to a report from Wall Street View, the current wave of AI giant IPOs, in the view of Joachim Klement, managing director at Panmure Liberum, is essentially a "risk transfer," massively shifting early investment risks to retail investors, pension funds, and other institutions in a cash-out move.

He believes that companies like OpenAI and Anthropic choose to accelerate their IPO at a time of high investor sentiment in order to cash out at high valuations before the hype cools down. Early institutional investors can exit the public market, while retail investors and pension funds taking the shares will face the risk of financial logic eventually reverting to reality.

He directly characterizes this process as "a large-scale transfer of investment risks from current holders to those willing to buy into the story."

Klement cites Alan Greenspan's "irrational exuberance" warning from 1996 as a reference — three years before the bubble burst. He predicts that AI hype is likely to continue until 2026 and that there's little chance of major cloud computing companies cutting back on investments; however, "impossible mathematics" will eventually revert to reality, "perhaps not in 2026, but maybe in 2027 or 2028."