Private Tech Giants Could Lose Scarcity Premium in IPOs
Scarcity creates value in everything from precious metals to giant private tech companies. That accounts for some portion of the stunning prices investors are paying to get into SpaceX, OpenAI and other companies while they are still private.
An army of wealth managers, fund executives and other go-betweens have made a lucrative living touting their access to coveted deals in these companies. Some of their clients have done well, at least so far.
Let’s not forget that these investors are buying into cash-burning companies in highly competitive industries whose future profits are but a dream. They are investing at valuations in the hundreds of billions of dollars. That might not work out so well.
What happens when that scarcity value disappears? The buzz right now is that 2026 could bring initial public offerings of SpaceX and Anthropic, with OpenAI not far behind. When everyone’s brother-in-law is able to buy a piece of these companies, there is no more scarcity. Do valuations go down?
At least three recent examples say yes. Until a few years ago, cryptocurrencies, real estate and most private companies were relatively inaccessible to everyday investors. Now dozens of cryptocurrencies trade on exchanges in one form or another, private real estate funds open to individual investors have become massive enterprises, and special purpose acquisition companies have brought hundreds of private companies onto the public markets.
All have performed poorly. That is a warning sign to prospective buyers of the giant private stocks both at their current valuations and later, once they are public.
I’ll put a caveat right up front. If space and AI become huge businesses, then SpaceX, Anthropic and OpenAI could grow far beyond their current valuations. Buying into Google, Facebook and Amazon at their IPOs has made many investors very rich. These companies, though, are anomalies in many ways.
That said, look at how crypto’s value has changed over time. Nearly two years ago, bitcoin hit the stock market in the form of a spot exchange–traded fund. It was the first time everyday stock market investors could easily trade crypto. Today, hundreds of ETFs and stocks stuffed with crypto trade on the exchanges.
How did those everyday investors do? Pretty great at first, because there weren’t many alternatives and demand was strong. But after a big runway, crypto prices peaked this past summer—and since then, the results have been grim.
From its July peak, Strategy (formerly Microstrategy), the most popular crypto stock, is down by two-thirds. The highly accessible S&P 500 is up.
Meanwhile, SPACs promised to give investors access to private companies that didn’t want to go through the hassle and cost of an IPO. Companies like Virgin Galactic made a few early fortunes for investors. But most of the companies that went public via SPACs should have stayed private. Investors certainly would have been better off.
According to data compiled by Jay Ritter, the longtime IPO tracker and professor at University of Florida, companies that went public via SPACs during the boom years between 2021 and 2024 have lost two-thirds of their value on average. Investors who were frustrated that they were deprived of investing in WeWork when its IPO failed got another shot when it went public in a SPAC deal. Two years later, it went bust.
Then there’s commercial real estate, which has long been held mostly in private hands. Blackstone, the world’s largest owner of office towers, apartment buildings and other property, gave individual investors a chance to jump in when it launched a fund called Blackstone Real Estate Income Trust (BREIT). A handful of other private equity firms joined in, taking in a flood of investor cash when interest rates were low and commercial real estate was humming.
It worked out well for Blackstone, which amassed $70 billion in the fund, but not for most investors. Interest rates rose and commercial real estate fell. Investors tried to flee, but the fund’s rules blocked many from taking out their cash.
The fund has delivered decent returns, but most investors jumped in at the worst possible time, missing the gains and capturing the downturn. That has happened again and again when investments are opened up to a wider group of buyers. They shoot up, investors get enthusiastic and buy at the peak.
Not to pile on, but this year’s crop of IPOs, with a couple of exceptions, also hasn’t given public market investors much to brag about. Even companies that popped on their debuts have tanked, while others are down by nearly half.
The steep valuations of the current crop of private companies means that individuals who buy after an IPO may not even see early gains. (Even more recent buyers might suffer.) Instead of being coveted for their scarcity, the companies will be scrutinized for things like profits, cash burn and growth. The deals will be interesting to watch—from the sidelines.
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