SpaceX and OpenAI IPOs are unlikely to bring skyrocketing returns that Amazon and Apple did, as companies go public later in life and early investors cash out

by Brad Badertscher, University of Notre Dame, [This article first appeared in The Conversation, republished with permission]

Elon Musk’s SpaceX is expected to soon become a public company in what may be the biggest initial public offering in history. But my new research suggests that investors who buy shares of the company are unlikely to see the explosive growth that past IPOs had.

The rocket and satellite maker, which confidentially filed to go public on April 1, 2026, is reportedly planning to raise as much as US$75 billion in the offering, which would give it a valuation of $1.75 trillion.

SpaceX isn’t the only high-profile company expected to sell shares to the public for the first time this year. Artificial intelligence companies OpenAI and Anthropic are also expected to list in the coming months in massive IPOs.

For Wall Street, that means blockbuster deals with hefty fees for the banks involved. For early investors and executives, it could mean enormous paydays. For everyday investors, meanwhile, the question is whether a hot company “going public” today represents a good investment opportunity.

What does it really mean when a company “goes public”?

For decades, an IPO marked the moment when ordinary investors could buy into a fast-growing company and share in its future expansion. Today, that moment often comes much later in a company’s life – after much of the dramatic growth has already taken place behind closed doors.

I study financial reporting, executive compensation and initial public offerings. In a recent study of nearly 1,000 U.S. IPOs conducted from 2007 to 2022, my co-authors and I examined what happens in the critical period just before and after companies go public. Our research suggests that the modern IPO increasingly represents a chance for insiders and executives to cash out — not the start of value creation for public investors.

IPOs used to fund growth

An IPO is when a private company sells shares to the public for the first time. Traditionally, IPOs helped young, cash-strapped companies raise money to grow. Investors supplied capital and shared in future success.

Many iconic businesses — including Amazon and Apple — went public early in their life cycles. Much of their dramatic growth happened after they were already public.

That pattern has changed. Research shows the number of publicly traded U.S. companies has fallen sharply since the late 1990s. At the same time, private capital from venture capital and private equity firms has expanded. In our research, we document that the average age of a company when it goes public has more than doubled from four years in the early 2000s to nearly 10 years by 2025.

Companies can now raise billions privately. They do not need public markets as early as they once did.

What we found in nearly 1,000 IPOs

Our research focuses on what regulators and practitioners call “cheap stock.”

This refers to stock options granted to executives before an IPO at a share price far below the eventual IPO price. Stock options give executives the right to buy shares later at a fixed price. If the IPO price is much higher than that exercise price, the options are immediately very valuable.

For example, say you’re a CEO of a company going public. You received stock options that give you the right buy 10,000 shares of your company’s stock at a price of $2. The IPO price is set at $20. After the IPO, you could exercise your right to buy the company’s shares at $2 and then immediately sell those shares for around $20, for a gain of $180,000.

We examined nearly 1,000 IPOs between 2007 and 2022. On average, the IPO price was 5.7 times higher than the exercise price of options granted in the year before the IPO.

In simple terms, executives often held options that surged in value the moment the company went public. Some of this difference may reflect real growth or the fact that private shares are less liquid – that is, less easy to sell – than public ones. But even after adjusting for those factors, the gap remained large.

This matters for future shareholders, namely those buying shares after the IPO, as substantial value has already been transferred to insiders before public investors bought shares.

Incentives to go public

We also found patterns in which companies granted more deeply discounted options.

Companies backed by venture capital and private institutional investors were more likely to show significant gaps between option prices and IPO prices. This supports a straightforward incentive story.

Some early investors want liquidity, or investments that are easy to turn into cash. Granting executives options that become highly valuable at the IPO can help motivate managers to complete the offering. In that sense, the IPO often serves as a liquidity event — a way for insiders to cash out.

That does not necessarily imply wrongdoing, but it does suggest the IPO now frequently reflects insiders’ exit timing rather than simply public investors’ growth opportunity.

What happens after the IPO

The story does not end on IPO day.

Our research shows that companies with more cheap stock options invested less in capital expenditures and research and development after going public. Cheap stock options provide less incentives for the company to take risks. And that in turn can affect a company’s future financial prospects.

Executives who already hold valuable stock options may prefer stable growth over aggressive expansion of the company. Since risk and reward are linked, companies that take fewer risks tend to grow at a slower pace, meaning future shareholders may see smaller gains.

Our research supports this conjecture, as we found that companies with more cheap stock experienced lower stock returns over longer horizons after going public. That matters for new investors who are not only expecting exponential growth after the IPO but also longer-run stock performance.

For public investors, the takeaway is simple: Much of the explosive growth in corporate value now occurs while companies are still private.

Brad Badertscher, Professor of Accountancy, University of Notre Dame

This article is republished from The Conversation under a Creative Commons license. Read the original article.