Not that anyone here needs to hear it, but there are some pretty remarkable statistics in this NYT piece, especially timely because of the upcoming IPOs in the news:
https://www.nytimes.com/2026/05/29/business/spacex-openai-anthropic-ipo-invest.html
Sky-High I.P.O. Pricing Isn’t Great for Real People
When newly public companies have been valued as richly as SpaceX, OpenAI and Anthropic seem likely to be, the outlook for ordinary investors has been poor.
Elon Musk doesn’t think small. Already the richest person in the world, he may soon become the first [trillionaire]. Mr. Musk is preparing to go public with SpaceX, his rocket and satellite maker, at a total valuation for the company of at least $1.25 trillion, and perhaps substantially more.The founders of two artificial intelligence companies, OpenAI and Anthropic, are also expected to come out shortly with colossal I.P.O.s of their own. Preliminary accounts give each of those companies a targeted total valuation of $900 billion, give or take a few hundred million dollars.
These are stupendous numbers.
As Buffett has said [paraphrase] “it’s not only what you get, but the price you pay”
Market history contains many lessons. It tells us that at the jaw-dropping valuations being discussed for shares of SpaceX, as well as OpenAI and Anthropic, the probability is exceedingly small that these companies will make money for ordinary people over the next few years.“They may be great as companies but when you buy shares in them, you should pay attention to their price,” said Jay Ritter, an economist and eminent I.P.O. expert at the University of Florida. “At the potential prices that have been reported, it would be very difficult for an investor to come out ahead in a three-year period.”
After several paragraphs explaining why this won’t be as disruptive to indices and index funds, he gets to the core of it for individual investors:
In a recent phone conversation, he pointed out an important metric, the relationship between a company’s share price and its annual sales: its price-to-sales ratio. When that ratio is high, a stock is richly valued — maybe irrationally so, reducing the odds that it will turn an investment profit within three years.He ran the numbers for all U.S. I.P.O.s with at least $100 million in sales from 1980 through 2024. Then he sorted them by price-to-sales ratio. He found that when that ratio exceeded 40 to one — meaning it would take 40 years of sales to equal the market value at that share price — the average return over the next three years was terrible. Specifically, it underperformed the market by 15.4 percent when calculated from the insider, or “offer price,” and 58.5 percent from the closing price on the first day of trading. That closing price is what ordinary investors are likely to obtain.
At this point, we don’t know what the final pricing will be for any of the three big I.P.O.s or when they will start selling shares to the public. But there are solid clues for SpaceX, because of its prospectus, issued as a prelude to actual public sales, which are presumed to begin in June.
The document showed that SpaceX had $18.7 billion in revenue last year, and it lost $4.9 billion. Its elevated valuation is based on the assumption that its sales will keep growing rapidly — and that, eventually, it will make barrels of money. Maybe it will.
But depending on how high its total market value goes, its initial price-to-sales ratio could be somewhere between 60 and 106 . That would be far higher than the 40 threshold drawn by Mr. Ritter. The numbers are fuzzier for OpenAI and Anthropic, but both appear to be firmly above the 40 threshold.
I wondered about the history of other major tech companies. So at my request, Professor Ritter computed the price-to-sales ratios of the Magnificent Seven, which comprises Apple, Microsoft, Amazon, Nvidia, Google, Tesla and Facebook. Years ago, when they had their I.P.O.s., their average price-to-sales ratio was 10.7 at the offering price and 13.3 at their closing price on the first day. At the end of three years, they were generally excellent investments, averaging returns of 46.3 percent from their first-day closing price
Here is a gift link, if you care to read the entire article: