The New IPO Era: SpaceX, Anthropic, and OpenAI

In this episode, we explore the monumental IPO of SpaceX, the upcoming wave of AI company listings like Anthropic and OpenAI, and what these developments mean for investors and the market. We discuss valuation strategies, market dynamics, and how to navigate this new era of space and AI investments.

Transcript

SPEAKER_01 0:00

Views expressed are solely those of the speakers and do not represent this show or its team. I think the single biggest mistake that investors will make, you know, from the IPO is going to be thinking that just because it's up massively on the first day of trading, that that's that it's that the direction of this stock is only going to be up. That is not the history of large company IPOs.

SPEAKER_02 0:25

Welcome back to Built Flask, conversations about wealth, work, and life. I'm Wade Lopez, and I am joined by our chief investment officer, Gary Aiken. We're recording this in the immediate aftermath of one of the most significant market events in a generation. SpaceX priced its IPO at $135 per share, raised $75,76 billion in a single offering, and began trading on a NASDAQ under the tipper SPCX. That is the largest IPO in the history of the stock market, larger than Saudi Aramco, larger than Alibaba, larger than anything we've ever seen before. And it's not happening in isolation. Anthropic, OpenAI have both filed paperwork with the SEC, and both are expected to follow SpaceX into the public markets later this year. We're looking at a wave of mega cap AI technology IPOs, unlike anything the market's ever absorbed at any one time. So today we're going to talk about what this moment actually means. Not the headlines, not the hype, but the real questions that matter for investors, for the broader market, and for what comes next. Gary, let's start with the number that is hard to kind of get my head around for anything. That's $1.75 trillion valuation on day one. What is the market actually saying when it assigns a number to a company like that?

SPEAKER_01 2:06

Great to be back with you. It's saying that this is a different kind of company with a different kind of mission and really a uh addressable market that has never been really something that's been on anyone's radar ever before in the history of man.

SPEAKER_02 2:27

And before we get into the implication of what that is, I want to make sure our listeners understand that SpaceX uh what it actually is today, because a company that went public is not simply a rocket company. Elon Musk XAI and the SpaceX um earlier this year, which means the Opio combined launch infrastructure, Starlink, satellite internet, a major artificial intelligence operation all under one room. That's an unusual combination to say the least, and it makes this harder to value than a traditional company. So a few questions to help frame it. When you look at a company like SpaceX that spans aerospace, satellite communications, and AI, how do you even begin to think about what a fair valuation looks like?

SPEAKER_01 3:14

Well, Wade, I think the way you approach a fair valuation uh would be the same way that you would approach any company, right? You you take a look at the different business segments, as you've alluded to, right? There's there's X, formerly Twitter, there's XAI, which is data centers, uh, there's Starlink, which is communication services that that are you know all over, you know, have have within itself a lot of different segments. And then there's uh, like you said, SpaceX and the rocket launching capabilities and future space endeavors, uh, which are you know undefined. So you have to break all those down. You have to think about what their revenues are today, what their products are, how many of those products they're selling into who the into their target markets, what percentage of you know, of of the target market they're gonna be able to penetrate, you know, to both today and then making projections into the future, you know, what costs look like for each of those segments, and then add them up, um, you know, and a sum of the parts kind of valuation uh to get to you know what you think a fair valuation looks like. Of course, you know, uh, you know, and I think that's pretty much the same thing we would do for any company.

SPEAKER_02 4:35

And SpaceX raised $75 billion on $29 billion in 2024 revenue. I mean, I they had um that's a revenue multiple that's most traditional businesses can never command, right? What what has to be true about future growth for that multiple?

SPEAKER_01 4:56

Yeah, the the 75 billion is what they're raising in the initial public offering, and that's about 555 million shares. And so you when you really are looking at the revenues of 20 or 30 billion dollars, you're comparing that to the market cap uh not of 75 billion, but of 1.77 trillion at $135. And you know, it's it's looking like in the in the in the in the marketplace, you know, post uh post-IPO, that the net number could be closer to 2.2, 2.3 trillion. So when you look at it that way, you're saying, all right, you know, based on 2025 revenues, you're talking about something like uh, you know, a hundred times multiple or 90 times multiple of revenue, which is which is quite ambitious. And uh, you know, we're looking at projections, you know, from Andreessen Horowitz and others who have been long-term investors that you know revenues could triple in the next uh you know couple of years. But even if revenues tripled in the next couple of years, you're still talking about a uh a multiple of revenues that's something like 70 or 80 times. Uh so uh it's still very, very ambitious and expensive. Um, so does that multiple make sense? No, you have to assume uh lots and lots of other growth that is unanticipated and that that comes in much faster than expected uh to make it make sense. But you know, uh Elon Elon Musk's ventures uh you know have have that element of uh fantasy involved in them that that gives it the Elon Musk factor, I guess.

SPEAKER_02 6:49

Yeah. And and kind of thinking about that factor, the previous record for the largest IPO was $29 billion, what you know with Saudi Ramco. Um SpaceX raved more than twice that amount. What does that level of demand tell you about investor appetites?

SPEAKER_01 7:10

I think it tells us that investors are looking for more equity exposure in different um different sectors of the market, different experiences that are that are that are in the future, um, and that there's plenty of cash around. You know, we know that there's trillions of dollars sitting in money market accounts. Um and so there's there's no lack of demand uh uh or and no lack of supply of dollars to to fund uh these IPOs that are coming out.

SPEAKER_02 7:47

And how do you feel about the fact that Musk retained a dominant ownership stake and has basically voting control? How should investors think about a single founder concentration risk in a publicly traded company of display?

SPEAKER_01 8:04

I think the way you you think about it is one, there's a key man risk. So to the extent that you think Elon Musk is very, very important to this company, then um then you you want to make sure that you know you're you're considering that in terms of what happens if Elon Musk gets hit by the bus. Um you know, but on the other side of that, you've got a CEO who is a hundred percent aligned with the long-term interests of growing the company. And um uh and uh so you know I don't think about that any differently than I would think about maybe Bob Iger at Disney, um, or our confidence in uh Jamie Diamond at JP Morgan, those kinds of things. Um, or the confidence that we had with uh uh Steve Jobs and and Tim Cook at Apple, right? Having having a dominant uh shareholder be your leader who is a visionary is not always a bad thing. Yeah. Um and having their interests aligned with yours is is definitely not a bad thing.

SPEAKER_02 9:07

Yeah, you know, and Starlink, which I I've had personal experience with Starlink, you know, through motorsports racing, we use them in the race hall, or we've had them for multiple years now. And then then when um we had the hurricane, you know, Starlink was our only communication uh for a couple weeks, right? So and it's also the most profitable piece of the business today, is that it it's that the real asset people are is this what they're buying when they're buying SpaceX, or is there a bet on something much further? And I think I know the answer to that, but I want to hear from you.

SPEAKER_01 9:41

Yeah, I think like we talked about the the valuation that you get from from the existing businesses today and the growth prospects from the existing businesses today is not what you're betting on. Uh it it it can't on its own um uh justify the valuation. Right, right, right.

SPEAKER_02 10:01

I agree with that. And one thing I found that's fascinating about the whole IPO is at timing. You know, SpaceX confidentially followed with the SCC in April. They accelerated its roadshow and it priced within weeks. And that's uh you know, that's a company that moved fast because it's you know, and you you read it in the market correctly and you and they saw a window, in my opinion. That tells you something about where investor sentiment is right now. So, Gary, when you see a company accelerate its IPO and the timeline that SpaceX did, what what does that signal to you about the how management read the market environment?

SPEAKER_01 10:40

I think management read the market environment as being very equity friendly right now. And the markets are at an all-time high. Investor sentiment uh, because of where prices are is very high. And um, and so I think they are correctly saying, hey, this is a great time to go to market. Um, I think you've seen that as well with you know, Google announcing a secondary offering and a lot of other companies, Oracle announcing secondary offerings. Um, and it goes back, you know, this isn't so uh abnormal, right? When you even when you think about somebody like a Warren Buffett, right, he would always buy things by new companies with cash, unless he thought that his stock was overvalued to an extent where using the stock to pay for an acquisition was more beneficial than uh than using using cash.

SPEAKER_02 11:37

Right.

SPEAKER_01 11:38

Um and so I think that's where we are today. Uh that that valuations are at a point where a lot of these companies are saying, hey, it makes sense for me to sell shares to to do different projects and to finance um my my business going forward than it does to issue debt or to uh use use cash on hand.

SPEAKER_02 11:59

Yeah, and I think that makes a lot of sense. I mean, that's a great explanation. You know, first day trading dynamics for a deal this size is unusual because the float is is is relatively small compared to the overall valuation. How does that limit supply affect what you see in early trading so far? I know I say early trading, it's what? 11.30. So we've had two hours of trading.

SPEAKER_01 12:23

Well, we we have not had any trading yet. I'm I'm I've got my uh Bloomberg uh GIP V screen up for those of you with a Bloomberg terminal, uh, which I assume in this audience is an audience of one, but um but uh but there's no trading yet. Uh there's an indication that the stock is gonna open at a hundred about $165 a share uh versus the $135 uh price. Okay. But uh there's going to be substantial um you know interest in in acquiring these shares because, like you said, the float is relatively small versus the overall uh valuation of the business and the number of shares that are actually outstanding.

SPEAKER_02 13:07

Yeah, that and uh I think that's gonna help it's gonna help a lot of factors in the early, you know, control some of that, right? Some of that volume control. But I also think that how when you look at SpaceX, how are they expected to qualify for large cap index exclusion relatively quickly? What happens to the stock when the passed index funds become mechanical buyers? And how should investors think about that dynamic moving forward?

SPEAKER_01 13:39

Yeah, I think this is a really interesting question, and a lot of people are are talking about it, and rightly so. Okay, so so the thing to understand about this is that most of the index funds are based upon what the indexes are doing. And so, like if you're an SP, which is an index provider, SP has said, look, we're not going to change our uh methodology just because SpaceX is out there. And so SpaceX may not make it into uh an SP index for 12 months. MSCI, another, you know, Morgan Stanley Capital International is another large index provider. And they've said, look, we're not adjusting our index schedule. You know, we we redo our indexes on a quarterly and semi-annual basis, and that's not going to change just because SpaceX came out today. Right. Um, you know, the Nasdaq has said, yes, it will be in the queues. So if uh if investors are in uh the QQQ or other NASDAQ-related ETFs, where Nasdaq is the index provider, you know, it will be in there within 15 days. Um and so there are these buyers out there that are going to come online over the next 12 months. Right. But at the same time, over the next 12 months, the lockup periods for uh for long-term investors who own a lot of shares in SpaceX are also going to come online. So, you know, the the rough numbers are that you know, approximately $600 billion of demand from passive index funds is going to be around in the next call it six to 12 months, but that's gonna be offset by something like $600 to $700 billion of investor lockups, where those investors are gonna be able to sell their shares on the open market. So my guess is that it will be digested, you know, on some time schedule that that certainly will increase volatility. We've always seen excess volatility in stocks, you know, in the first 12 months of you know, post-IPO, but but that the uh the flow should be digested by the market, you know, without any major hiccups.

SPEAKER_02 16:03

Yeah. And you know, SpaceX is just the first deck, right? Yeah, Anthropic, OpenAI are waiting in the wings, and both are expected to be enormous offering in their own right. Um, the company that makes the software I use every day to run my business is going public. The company behind Chat GPT, which has become one of the fastest adopted consumer products in history, is going public. These are just abstract companies, right? Most of the our listeners already use their products. So, Gay, how do you think about Anthropic and OpenAI and how they're gonna be valued differently than SpaceX? And what will the market be looking for when those S1 filings become public?

SPEAKER_01 16:46

You know, I think the S1s for OpenAI and Anthropic are gonna be a lot cleaner. I think they're gonna be more traditional than a SpaceX. Um, and they won't have the Elon Musk factor. They're gonna have to justify their valuations based upon uh what the businesses are actually doing. Both of them will have good stories to tell about growth, about investment, about the the future of their business, and you know, the the visibility of demand going forward for them. So they'll they'll have a good story to tell, um, but they won't have that Elon Musk factor. Yeah. Uh and so I think the valuations are going to be more scrutinized. That that said, investor there will be lots of investor demand. Um, and and I imagine that they will be successful. That's right. Um, you know, the the timetables for those will be September, October for IPO, I think. Okay.

SPEAKER_02 17:47

Well, you know, OpenAI has revenue, growing users, and they already have a consumer brand. Anthropic has enterprise clients, API revenue, and a reputation that's kind of built on safety and reliability, right? That's we're using that. So those are very different stories. Which is more defensible when you're looking at that as a public company, in your opinion.

SPEAKER_01 18:14

Um I I don't know, really. Yeah. Um, you know, we'll learn more about what their businesses really are when we when we get the public S1s that come out. Um right now they're they're in confidential form with the SEC. Um and uh, you know, I think that ultimately, I think both will probably be defensible uh businesses. They you know the the one thing that we need to think about in terms of you know what they do that's different from the picks and shovels is that you know these are these are companies that whose moats probably aren't as deep as as the picks and shovels businesses moats are. Um there's less um there's less capital infrastructure that needs to be replaced. Um there certainly is some IP, but it's not like that IP is irreplaceable. Right. Um and so we've seen lots of entrants into the model building business. And uh there may be some shakeout um, you know, down the road as to which models become dominant. Maybe there's new players that come in after the fact. Remember, Google didn't enter the the the search business until the search business was relatively mature and displaced everyone. So um so so I think that there's you know, there's there's you know, we're gonna have to think about all of those things when it comes to anthropic and open AI, whereas, you know, again, SpaceX has this Elon Musk factor that that brings in a sort of a fantasy realm.

SPEAKER_02 19:58

Yeah, one of the underappreciated aspects of this of AI is the is basically the compute cost, right? Um, and I guess these companies are spending tons of billions of dollars on chips, data centers, and you know, it energy just run their models. What point does the market start asking hard questions about the margin profile when you're looking at this segment?

SPEAKER_01 20:33

I think the market will start looking at margins uh you know once once they are publicly traded, um, and they're gonna be in focus. But my guess is my guess is that the margins are you know fairly wide. Um and uh and what we're seeing in in terms of sort of uh you know how companies like this are gonna be trading at first is that we won't necessarily be valuing them strictly based on today's profitability. We're gonna be trading them based upon other metrics.

SPEAKER_02 21:07

Okay.

SPEAKER_01 21:07

Um the number, you know, the the revenue number will be important, the users' numbers will be important, the the tokens that are that are processed are gonna be important um to investors and not necessarily you know profit and loss. Right. Remember that Amazon didn't turn a profit for what the first 15 or 20 years of its business and kept on growing, and that sort of befuddled investors who were focused on this profit and loss idea. Right. But the real story in Amazon was the the the building of capacity, the use of free the generation of free cash flow that enabled them to reinvest in their business. Right. And so, and and so it wasn't necessarily the income statement until recently that that was the big story there. So profit and loss is not sort of the end all be all for high growth businesses that are. That are in their uh call it uh early years. Right.

SPEAKER_02 22:04

So speaking of investments and and and things of companies like Microsoft has a significant stake in open AI, right? Google has invested heavily in anthropic. How does the public market dynamic change shift when major strategic investors are sitting on the cap table and and have their own competitive interest? Do you see a conflict of interest or or do you think it's actually beneficial?

SPEAKER_01 22:36

Um well, I think it's I think it's beneficial in the near term for companies that are heavy users of each other's products to be invested in each other. Um and uh but but that also creates conflict of interest when you become uh when you want to get into that business yourself and you have conflicts of interest, or you know, you don't feel like like that that person is doing a great job anymore. Um, you know, it's like it's like a relationship that was good at the beginning and now it's gone bad, and you know, you have to find a way to get out of it, but you you you silly, you know, silly you bought a house together and you know, and now you're tied up in things that you don't wish you weren't. Um, at the same time, like these investments in OpenAI and Anthropic by Microsoft and Google and others that you've been talking about have been major factors in why their profitability has been growing. Because they've been saying every time that there's a new new round of equity investment in these companies, they get valued at a higher level. That higher level of valuation gets gets converted into the income statement, it's not cash, but it becomes a you know profits for these companies. And so a lot of these profits are baked in. And so if the profits are already baked in, you know, they are going to want to cash out. And so, you know, if you're a Google and you're selling your your stock today, um, you know, you may sell your anthropic shares when anthropic goes public to buy back your own Google shares later. Um, so so there's lots and lots of dynamics here that we as investors in these companies are going to be looking for.

SPEAKER_02 24:17

Well, let's bring this back to something more practical. We had a conversation on a previous episode about AI recently, right? And um talking about broadly investing. What we did not have at the time was the reality of these companies actually entering the public market. Now we do. It's been a short period of time for some of this, and that changes the conversation for our clients, right? But before, if you wanted an AI exposure, you were buying the infrastructure layer, like NVIDIA, the hyperscalers, the chip designers. Now you will potentially be able to buy the application layer itself directly, right? The model companies themselves, Gary. Does the availability of SpaceX and eventually Anthropic and OpenAI as public investments kind of change how you think about AI in portfolio construction is moving forward?

SPEAKER_01 25:23

I think it'll probably change, you know, assuming they're in the indexes. Again, you know, the way that we manage money here is that we take a look at the indexes that we are trying to track from a risk perspective, and then add incremental value by overweighting and underweighting uh sectors and securities. You know, we call it incremental alpha. Um but um but you know, the um uh you know, where we would think about that is, you know, do we do we want to own anthropic and open AI, assuming they're in the index, versus some other software companies that could that are going to be their their uh direct competitors? And I assume that they're gonna come in as as software industry. Um uh and and I don't I'm I'm not sure exactly which GIX subsector they're gonna be in, but I assume they're gonna be in software. Yeah, um, so that that would be how we would think about it. Sort of relative positioning within the index and within the sub sub-industry.

SPEAKER_02 26:25

Yeah. So you don't you don't see them coming in the same classification you put Bitcoin? I take it.

SPEAKER_01 26:31

Well, I I don't I don't put Bitcoin anywhere. I know. I'm interested.

SPEAKER_02 26:38

Um T. All right. So so what about clients that we have out there who missed the infrastructure trade? And they're now they're kind of watching these IPOs with a lot of excitement. And I've I'm telling you, I've got text messages right now, right? Um and maybe a little let's just say what what is the honest conversation that we should be having with them?

SPEAKER_01 27:03

Yeah, if they're clients of ours and have been invested in CAMS models, then then uh they haven't missed out on it. And um, you know, we whether it's their core ETF investors invested in uh semiconductor ETF that's been overweight and a great performer, or whether they've been in our one of our direct strategies and owned uh directly some of these great companies, um, they haven't missed out. Right. And the other thing I would say is that again, going back to our earlier conversations, you know, one of the things that uh that that I said, you know, what what are investors uh your you know, your question, what are investors getting wrong about today, or what should they, you know, not not uh not worry about? And I said the fear of the fear of missing out, right? Exactly. This fear of FOMO. Right. Uh we're still in early innings with all of this AI infrastructure build-out and all the things that are going to come down the road that we you know we we can't even foresee today. Right. Uh and so I wouldn't I wouldn't worry about the fear of missing out at this point yet.

SPEAKER_02 28:05

Well, is there a scenario where all three of these companies go public and it actually creates a drag on the rest of the market simply because you know the capital has to come from somewhere. There's there's I know there's a lot we talk about all the time, a lot of money on the sideline, but it's not you know, it's not infinite.

SPEAKER_01 28:24

Um I I don't think that that the IPOs themselves put a drag on the market. Um and uh and yeah, I'm gonna leave it at that. I don't think that they do.

SPEAKER_02 28:36

Okay. All right. So let's move on to a final segment here, Gary. And every, you know, when you generationally IPOs, you know, the the way it changes something about how markets work. The the internet IPO boom of the late, you know, I guess 90s rewired how people thought about revenue multiples, how growth was going to be invested, you know, the SPAC wave of 2020 and the 2021 revealed how quickly retail enthusiasm could detach from fundamentals, right? The the this feels different from both of those in some ways, but it kind of rhymes with history and others, right? Does this IPO wave feel more like the healthy maturation of a real industry, or does it kind of have the fingerprints of late cycle success? I should say not success, maybe even excess.

SPEAKER_01 29:35

Yeah, I I don't know uh you know how to compare them. Yeah. I think SpaceX is a different animal, right? Although it's in a similar business to anthropic and open AI, uh, for part of its business. Right. Um, but you know, anthropic and open AI, I despite their size, but we don't know how big they're gonna be, but we assume they're gonna be pretty big, um, are gonna be more similar to to um to IPOs that we've seen in the past, um given that uh you know they they haven't been around that long. Um and even though they've had a lot of rounds of financing, they're still coming out to IPO to the market at a relatively early stage in their in their company's histories. And so uh that's that seems pretty normal to me. Um they and what they are gonna have is a robust uh you know business case, which you couldn't say for the SPACs, which you couldn't say for the some of the dot-coms. Right. They are gonna have real revenues and real RD budgets and real profits and losses, which you couldn't say for the SPACs, and which you couldn't say for a lot of the dot-coms. Um, so so I I'm you know, maybe we get another round of IPOs of uh you know AI related uh companies that that aren't as robust and as aren't as as as real as OpenAI and and Anthropic are likely to be.

SPEAKER_02 31:10

Yeah.

SPEAKER_01 31:11

And that and then that's that's sort of the the exuberant uh you know, quote unquote top of the market. Um if we if we get you know followers on who are riding on the coattails of these large companies or these you know the these stat more established young companies um that that that don't really have the the wherewithal.

SPEAKER_02 31:33

Right. You know, one of the patterns we see historically is that these you know these IPN IPO windows open, and then you kind of touched on it when insiders and early investors want liquidity, you know. That's not inherently bad, but it's worth naming, right? And would who benefits most from these IPOs going off at these valuations? And is that aligned with what retail investors really need?

SPEAKER_01 32:02

Um you know, what's aligned with what retail investors really need is more, as we always talk about at Concord, with what their overall investment objectives are and what their financial plan is. Um, in terms of you know, the the the folks who have been long-term investors in a SpaceX, you know, this day has been a long time coming. Some of them have been invested in this company for 20 years. Um and so today is the culmination of 20 years of patiently waiting for the company to go to go public. Um not that there haven't been evolutions in the private markets that enable them to get uh get money out if they have wanted to. Right. But my guess is a lot of them have been, you know, true believers in uh in Elon and and his vision and have stuck around. And uh, you know, a lot of them probably will continue to stick around.

SPEAKER_02 33:03

Um don't you think the concentration risk in these major indices is already significant? I mean, you have a handful of mega cap technology companies that account for disproportionate share index weight. SpaceX qualifies for the SP 500 at 1.75 trillion valuation or more. What does that do to the passive investors who just own an index fund?

SPEAKER_01 33:34

You know, they they will end up owning, you know, something like one and a half to two percent of their portfolio in SpaceX. Um that's pretty simple. That's what it's gonna do for them. Yeah. And for our clients, you know, we're gonna have to make a decision at that point whether whether we want to invest at it, invest in it, you know, below market weight, above market weight, or at market weight, or you know, to the extent that it's you know within our investment guidelines to not own it at all, to not own it at all. Um and that'll be how you know that'll be an investment decision that is made based upon the same way that we make all investment decisions, right? It'll be uh macro, top-down, you know, views on the on the on the industry sector, sub-industry sector, views on the company's specifics, uh, you know, and and then trading in it based upon, you know, technically, you know, finding a decent entry point.

SPEAKER_02 34:34

Right. Well, you know, interest rates still a little bit elevated to where they were a decade ago. And and when you look at high growth is you know, historically, companies with with distant earnings or more sensitive uh rate meatments, right? And how does the current rate environment factor into how you underwrite a company like SpaceX or even Anthropic?

SPEAKER_01 35:00

Yeah, I think the interest rate environment is definitely something that that investors ought to be uh cognizant of, especially when they look at the sources and uses of the uh 75 billion of money that's going into SpaceX today. Yeah, right. 20 billion of that is going to be used not for future growth, but to pay down existing debt. Right. Um and uh, you know, and so and you know, Google recently tapping the secondary equity markets rather than going back to the debt markets. Right. Um not that Google couldn't have tapped the debt markets. Yeah, of course, right. But but I think it's it's it's show it's a little bit of showing the the bond investors that you care about them. Yeah, you you need to show love to the bond investors because whether you whether you want to or not, because uh because ultimately if you want to borrow more money from them, uh you need to show them that it's you're not you're not always going to the debt markets for everything.

SPEAKER_02 36:03

Yeah, and it's not and not always going when you have to, right? Like you say, and share the love. So you know, I think the question I hear most from clients right now is really simple. Way should I buy? And and you know, I want to make sure we give people a framework for thinking through the scenarios that we kind of talked about, because the answer is not always the same for everyone, right? So, Gary, what's the framework you use when a client comes to you and says they want to participate in one of these mega IPOs? And I know typically they're not coming to you, but we've pushed some off to you here. We've had, you know, uh a cattle gate, right? So you've had that, you've talked to a few clients.

SPEAKER_01 36:43

What do what do you tell them? You know, I I first of all, it's a it's an issue of suitability. And some of that suitability issue is gonna be dealt with by our custodians, right? We're multicustodial between Schwab and Fidelity, and Schwab and Fidelity are gonna have their own rules, and so investors have to fit into their boxes first in order to get to qualify for shares. You know, the second thing we would sell them is look, this is your decision. You know, it's it's an unsolicited offer um uh or order from you to to buy these shares, and so we're not we're not making a recommendation one way or the other. Um and uh and then finally, I guess, you know, we would point them to sort of our general philosophy and say, look, we you know, we don't participate, you know, our our rules um are not even our rules, but our our policies of procedures, right? We follow them. That's one of our core tenets of of you know the way that we think about investing. And so our policies of procedures say, you know, we don't invest in IPOs, but there's a general exception for large companies, you know, large established companies. And so SpaceX definitely fit into that. Anthropic and and uh open AI are gonna fit into that. And so we would explain to them sort of what our rationale is for why we're not participating on behalf of clients, even in situations that that we that we could. Um yeah.

SPEAKER_02 38:17

So yeah, yeah, I I I know what my rule of thumb is for this, but we're not talking about our typical you know Concord clients. So for those people listening out there that are not Concorde clients, um, is there a size of allocation relative to their portfolio or a total portfolio where you think participation makes sense versus where it becomes speculation?

SPEAKER_01 38:41

Well, I think it is speculation. Okay um, no matter what. Um, because the vol the volatility on the first day of of trading or the couple of days after IPO is going to be enormous. So there is a speculative element to it. Um, you know, some information is known, but not a lot of information is known. Um there isn't enough trading history to to really do any significant technical analysis. So I think it would be it would be speculative in nature, whether you whether you are very bullish on the company or not, right? Rather, regardless of your opinion on the company, it would be speculative. So I would think I would think you put it into that that fund money bucket.

SPEAKER_02 39:22

Okay.

SPEAKER_01 39:23

You know, if you uh you know, that's probably where it belongs.

SPEAKER_02 39:25

Well, I think you know I think that answers this question. Uh I was going to ask you, what's the single big mistake you expect investors to make during this IPO? So just keep rolling with it.

SPEAKER_01 39:35

Yeah. I I think the single biggest uh mistake that investors will make, you know, from the IPO, um, you know, is going to be thinking that just because it's up massively on the first day of trading, that that's that it that the direction of this stock is only going to be up. That is not the history of large company IPOs. Over the last uh you know, 20 years, the history of these IPOs is that on average, okay, on average, these stocks are up 14% over the course of 12 months. The median, the median IPO is down 9% over those 12 months. And the average drawdown at some point in those first 12 months of trading is 55%. So uh, you know, even though it's up today, uh, you know, and it's now trading, so I can see it on my screen, it's trading at $163, $164 a share, um, versus the $135 offering price. Um, even though it's up significantly today, that doesn't mean that you have lost out on your opportunity to buy it forever, right? Um, so so I think that's the that's the one thing.

SPEAKER_02 40:51

Yeah, I think uh I think that's a perfect close for us to kind of bring this home, right? I think um we've covered what SpaceX you know just did and what it means. We talked about anthropic and open AI waiting in the wings, and we addressed what this wave means for the broader markets and individuals out there. I as always, you know, this is gonna be a fun segment here to finish out and you know close with the three questions, Gary. These feel especially relevant for today. They're not easy. But Gary, what is the single most important thing that matters right now for investors watching this IPO cycle unfold?

SPEAKER_01 41:37

I think the single biggest thing uh is to remember that we are we are living in a reality that is changing every day, and to keep an open mind as to what as to what these things will will be in the future or what opportunities could exist.

unknown 41:54

Yeah.

SPEAKER_01 41:55

We are at the very beginning of of the space-based economy, and that is gonna be very exciting.

SPEAKER_02 42:00

Yeah. That good good answer. And uh so what are you watching over the next six to twelve months that every person in his audience should be paying attention to as anthropic and open AI move toward the public markets?

SPEAKER_01 42:14

Yeah, I'm gonna be looking for uh those those S1s when they become public. I'm gonna be looking at modeling out those companies, and I'm gonna be looking at where entry points are or should be once those companies are in the public uh public uh indices that we follow.

SPEAKER_02 42:34

Perfect. So last question: what's the one thing investors absolutely need to avoid right now?

SPEAKER_01 42:43

I think the one thing they need to avoid right now is thinking that if they miss out on getting an allocation to the IPO, that it's over for them forever. Remember, uh, you know, there were plenty of times after Apple went public uh to buy Apple and still make money, and you could buy it at a significant discount to where the IPO was. The same happened with Google, the same happened with Amazon, the same happened with Meta. Uh, you know, you can name just about any any company that's that's great today, where there were times in the in the future post-IPO where you could still buy it, and if you held it long enough, you could make a lot of money. So don't don't uh don't feel like, oh, I missed it today. That's it for me.

SPEAKER_02 43:30

Yeah, I agree because history is being made in in real time. I mean the public markets. SpaceX just pulled off the largest IPO ever recorded, and two of the most consequential artificial intelligence companies in the world are preparing to follow that. That's remarkable by any measure. But history also tells us that remarkable events create remarkable opportunities and remarkable mistakes in roughly equal measure. The investors who come out ahead in the next several years will not necessarily be the ones who moved the fastest or who took the most risk, right? They will be the ones who stay clear-headed, disciplined, and focused on what actually matters for their long-term financial plan. When you're building something you want to last for you, your family, your business, or the communities you live in, and where you serve, headlines are not a strategy. Discipline is. Gary, great conversation as always.

SPEAKER_01 44:37

Thanks, Wade. And since we're talking about a space-based business, uh, live long and prosper.

SPEAKER_02 44:44

All right, thank you out. We'll see you next time on Built to Last. Conversations on Wealth Work Ali.

Announcer 44:54

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