The Dividend Cafe - IPO Mania

Episode Date: June 12, 2026

Today's Post - https://bahnsen.co/49T1HsR David Bahnsen returns Dividend Cafe to its normal market focus and records Thursday to avoid being influenced by SpaceX’s anticipated IPO trading. He discloses he and some clients own SpaceX via an SPV and will be locked up for a year, after which he expects to sell. Using SpaceX’s planned $75B raise with a very small public float and huge valuation, plus prospective trillion-dollar IPOs from Anthropic and OpenAI, he argues public markets face unprecedented IPO valuation “indigestion.” He challenges the belief that IPOs are easy money driven by hype, limited supply, or forced index buying, citing history of large drawdowns after major IPOs and warning about post-lockup selling. He also notes private-company markups boosting reported earnings at mega-cap tech firms. His central message: IPO mania distracts from fundamentals and ignores risk-reward symmetry; “free money” doesn’t exist, and disciplined long-term investing matters. 00:00 Welcome Back Update 00:42 Why Record Early 02:18 SpaceX IPO Setup 05:00 Valuation Shockwave 08:00 IPO Pop Myth 09:38 Index Inclusion Hype 12:02 Hidden Earnings Impact 13:31 Ask Better Questions 17:16 Private To Public Shift 19:34 No Such Thing Free Money 20:47 Discipline And Wrap Up Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Well, hello and welcome to this week's Dividend Cafe. I'm your host, David Bonson, and we are back to normal after a kind of different approach to Dividendon Cafe last week. I just want to start off by thanking everyone for the feedback I got. Last week's Dividendin Cafe, we showed the video, and I published the transcript of my speech from the commencement. address I gave at Pacifica Christian High School a few days earlier. And I honestly didn't know what to expect and it just overwhelmed me the positive feedback I got. So thank you for that. It was a lot of fun to do and have that circulate div cafe. And this week's is a lot of fun too. But yes, it is back to

the normal vein of what we actually do around here, which is investment and market discussion. I'm doing this on purpose. I am recording late in the day on Thursday. Markets are already closed. this is going to come out Friday, and I almost always record the Friday Dividy Cafe on Friday, but I didn't want to wait until Friday this week because I really want the written Dividy Cafe and the comments you're hearing from me right now here in the video and podcast to not be tainted even a little bit by whatever is going to happen tomorrow if indeed the SpaceX IPO prices and begins trading as it's supposed to. There's a link in Dividy Cafe, a lot information about the fact that SpaceX is going public

and so forth. And this Divida Cafe is not about what we think regarding SpaceX per se, or OpenAI per se, or Anthropic. It's about this broader IPO mania going on. As you're listening to this, SpaceX has already begun trading and it's way up, or it's way down, or it went way up and then went way down, or whatever it did. I don't want any of whatever happens to color the broader principles I want to talk about here today, which allow for every possible outcome with the pending IPO of a big, huge valuation company like SpaceX.

So that caveat is out there for a reason. There is nothing that can happen, nothing with this IPO that would change my opinion on anything I'm about to see. say. Let's just get into this IPO mania discussion by first setting the stage with this actual company. It's supposed to have the ticker SPCX, SpaceX. The one caveat I do have to give is that I am an investor in the company along with a pretty good amount of clients that we were able to buy in a special purpose vehicle, one of these funds that you read about that got early access shares, quite a few rounds ago, and I will be locked up for a year after the IPO. And if it were not, if there were no lockup, I would be selling. And when the lockup ends, I most certainly plan to

be selling. And that has nothing to do with being bullish or bearish on SpaceX. I'm going to kind of explain a bigger picture view here. But I want that disclosure out there for full transparency and to understand the consistency with which what I'm about to say is going to be said. Look, this company is looking to raise in their IPO $75 billion, which would be far in a way the largest amount ever raised in IPO. But at the same time, the $75 billion is going to represent 3 to 4% of the total value of the company. What we refer to as the public float, the amount being available to trade in the public, is one of the smallest in history as a percentage,

and that is up against one of the largest denominators, that is total market valuation in history. This is an extraordinary event, and there are technical factors in that that might very well create supply, demand, and balance where this thing has to trade up for a bit because there's just all kinds investors want to come in and not enough shares to get.

But what I would suggest to you is that there are a number of reasons. People may want to buy a company like this. We'll talk about some other companies too, long term. The model itself, what we were buying when we invested in this several years ago, was, you know, a rocket ship company that had a pretty dynamic commercial satellite opportunity in a Starlink business that could either be spun off for certainly more traditionally valued. The way that they are now positioning this

is around building data centers in outer space someday, and there's still a rocket ship company. There's a wide array of things that it has been, but it is a aspirational company to say the least. Well, you're not just looking at a $1.7, $1.8 trillion dollar valuation of a SpaceX entering, public markets, but the company Anthropic has filed for an IPO. They are most famous for the language model that they make an AI referred to as quad. They're looking for, let's call it

trillion dollar valuation. I think it's technically $965 billion. Open AI, which makes chat GPT, is looking for something similar around a trillion dollar valuation and has done a sort of stealth filing. Let me put this in perspective for you so you understand why I'm referring to IPO mania. We understand the indigestion in public markets of what is being asked to be digested. Adjusted for inflation, the entire IPO tech wave of 1995 to 2000, the market cap of all those companies put together was about $3 trillion. Just the three companies I just mentioned are looking to be close to $4.7,3.7, 3.8 trillion. And that is up against not only six years worth of IPOs, but totaling hundreds of companies.

And again, that I am adjusting for inflation. This is a massive valuation. The companies are all in need. of capital, and public markets definitely represent a quicker and a deeper source of capital than continuing to stay in private markets. But they've been able to stay in private markets for a long time because our private markets are way deeper, way more liquid, way more sophisticated than they've ever been, and there's been a lot more staying power.

And this alters the thesis a bit. It most certainly alters the risk-reward because a lot of people of the years could say, oh my gosh, the long-term picture of this XYZ company is massive. So, yeah, I mean, it sounds like I'm buying all at expensive, but where this thing could go is so big because of this revolutionary transformative vision they have. And you look at how wonderful the technology might be at Anthropic or you look at how wonderful the potential could be with spaceships and outer space.

You go back in time, you say, this e-commerce thing that Amazon's are going to do could be huge. The major difference, though, is that the companies of yesterday year were going public very early in their maturation, and investors were actually buying that potential growth that in a lot of cases became real growth, where now you're talking about a lot of investors that have been there paying the bills for a long time, and it's at a much deeper, further part of their maturation cycle by the time they even go to public markets. Well, before we talk about the serious element of long-term prospects, what about just wanting the hot, fun, quick buck of the IPO? Isn't there this excitement and high reward for getting access to IPO as the shares inevitably pop? And I want to put a chart up right now. And there's a lot of numbers in this chart, so bear with me.

But what you see here, it was put together by truest research, is, Because all of the big IPOs, almost all those names you see there, familiar names, and how their IPO did in the first week, month, three months, six months. You have a ton of these names that were huge. It traded way down. You have a ton that were quite a bit down six months, 12 months later. You have almost all of them at some point in the first year drew down 50%. This notion that all these things just represent free and easy money is not true.

true if you look at the one week column, and it's not true even further out. And it's never true. Even when it does work out, you look at some of these names that did have a great first year, but along the way still dropped 50, 60, 70, 80 percent before going up and so forth and so on. This idea that the entire world of IPO is just simply free money is utterly absurd. It's totally countered by a testimony of history. Now, people can believe, well, this company's different or that company is different. You can become more selective about it. I don't agree. I think that some could go, some could not. But what we're talking about with IPO mania is people that say, hey, everyone's talking about it. There's a lot of hype. I'm hearing this rumor that

index funds are going to have to buy it. Or the retail investors is four times more indications for interest than there are actual orders available. Wall Street Journal posted today that Black Rock has a $5 billion order. The largest IPO of the entire year raised basically $5 billion total. And now you have one investor making one order for just that amount of money as they are trying to raise $75 billion here on SpaceX. There is an argument that people want to make that this one you just can't lose on, that the indexes are going to have to come in and buy. Well, NASDAQ 100, apparently Russell, apparently Vanguard seems to have bent their rules to allow for some index inclusion. They're not doing it to the weighting of the whole company.

They're doing it to the weighting of the float, which is far, far, far smaller. But it's still, just because of the sheer size of the deal requiring some of these indexes to buy fair amount of stock. S&P, the Standard Apporters Dow Jones, merged company declined to do that. Had they done it, it would have been even more so. But my point is, I think you have to understand that there are temptations out there. There's a desire to believe some things that would be great if they were true that are not true, that there is this free money or risk-free money available because indexes will have to buy or because there's so much demand or because there's such a little supply.

And when I say it isn't true that it is inevitable, that doesn't mean it won't come to be. It just means it can't be known precisely. And in fact, there are all sorts of scenarios in which you could see a pretty significant dump of shares. And you may very well not see it day one, week, one, month one, but you might see it in mass after six months or one year or what have you. As more locked up investors become unlocked, there's any number of scenarios. But I want people to understand, first of all, this is something I think we need to be very critical of as a mentality, IPO mania, but it is not limited to IPO mania. Plenty of people right now, we're talking about public markets, index investors. It doesn't get more traditional, conservative, you know, diversified, all that stuff.

And people are talking about unprecedented earnings growth the last quarter. But there's a link at divinycafee.com where you will see the data played out. There were $69.2 billion of profits from last quarter in the other income line just from three mega-cap tech companies. And that is essentially, not entirely, but almost entirely, them having to mark up the value of some of these very names we're talking about. It's other names too, but you're entropics and open AIs and so forth. Some of these hot private companies, sometimes they are very, very embryonic, early private market exposures. These things have seen a lot of markups.

So you're not just talking about the risk embedded in this for IPO mania, people trying to go play it in aftermarket of an IPO. But a lot of this stuff is already on people's statements through their big public company. and it's not just that it's affecting the marks and their value, but it's affecting the actual underlying reported earnings because so much of the earnings are coming down to just markups in the values of some of these private companies. So this stuff is all around us. I want to get to the important stuff here in our final few minutes, the point that I think

needs to be understood that I don't have any fear in the world of being unpopular for saying and that I can assure you I will be unmoved if the SpaceX IPO performs well on day one or week one or what have you. I just want people to hear themselves when someone says, oh, this stock is going to be good because the indexes are forced to buy it. You think that's a sustainable investment thesis? This stock is going to be good because it's only a small float. You think that that is a sustainable reason to own a company that's going to end up rationalizing, whatever the value creation narrative is. Now, maybe the value creation narrative gets rationalized,

but people start to throw out these idiosyncratic things or one-time things or whatnot, even just folks, flat out saying with tremendous self-awareness, the hype here is huge. What can we do? Just linking it to absolutely no investment story whatsoever other than the hype. Look, what I'm not criticizing, in theory,

what I'm separating from the prior statements is those people, there's not a ton of them, but there's some that are saying, hey, this company is going to be a long-term compounder of capital. They have unprecedented opportunity in this new domain, the new frontier, AI infrastructure and space. Elon Musk's track record is so good. I don't care what it does.

I don't care what the governance is. I'm just investing in him because his track record of Tesla. I don't really actually get this, but I'm pretending. Someone said, having studied the revenue model so much, I can ignore the short-term volatility, but I have a long-term fundamental belief in this strategy. And again, that could be a very legitimate thing to say. Now, there's a link at Diven Cafe I put from one of my favorite professors I've had on my podcast before, who out of NYU did a very, very, very, very deep dive into his own analysis to the revenue model

and fundamentals of SpaceX. And he had a few things to say about the current valuation. But, again, anybody could be right or wrong. around a low view or a high view. That's not my point. What my point is, is that IPO mania keeps people often from asking the right questions, from thinking the right way. When you're asking about how the float is going to be or how index inclusion might drive up a stock price, these are issues that distract. There is not only a short-term focus, a speculative focus, but it's worse than just speculating. You're speculating while believing that you're investing,

that you've run into this sort of unicorn whereby you have a big outsized return coming and no risk to take it. And sometimes you might get that big outsized return and actually believe the lie that you didn't take risk to get it. That symmetry between risk and reward gets ignored when people are gambling and winning. And I have no idea if this one will be a win or not. But when someone says, I want to own this stock for 10 days because I think in 10 years, Elon will have crushed it, that's a non-sequitur.

That's an inconsistent argument. They're confusing a short-term aspiration with a long-term thesis. But then if they say, I want to buy it short-term because I think I'm going to just get a quick buck on it, There's someone dumber out there. There might be, but that is called greater fool theory. And all I'm asking is for people doing it to know they're doing it. Okay?

Now, longer term, someone who is more honest and has a better intention and better thoughtfulness, and they say, I believe it's the future, I have an intelligible, long-term view here. I think that's great. I want to point out a lot of people were investing in that long-term, intelligible thought years ago at a much lower valuation. I'm going to go to our chart of the week real quick. I'll have us put up the chart just showing you the amount of money that was raised, you know, years ago, the big round I have up on the screen here,

they raised $750 million, okay? That's 1% of what they're about to go raise in the public at $137 billion valuation. They've raised a total of $11 billion to get, up to 137 valuation, and now they're coming out of 1.7, 1.8. They're raising 75 billion. I think that you have to at least ask yourself, is it possible that a lot of the ability to stay private longer has taken some of the long-term public opportunity away? Not all of it, maybe, but some of it. Are the existence of these companies, as they navigate through some of the biggest percentage growth years that they'll have in terms of revenue formation is that taking

away some of the ROI that a public investor might have access to. I don't know the answer. I certainly know the answer in all cases. I think some it's a little more self-evident than others. But my point being that it is a question worth asking and it's a risk worth contemplating. I think that there's all sorts of reasons to have a long-term bullishness on different elements, but when you start talking about data centers in outer space or the competitiveness of various AI companies that are spending trillions of dollars and have very, very, very little revenue, I just would encourage people to say, okay, maybe you've bought me, bought what I'm selling on why the short-term flipping thing is just rank speculation. But even trying to

attach a long-term thesis to it is difficult. It doesn't mean it's a bad idea. It just, and it's certainly doesn't mean it can't pay off. But I think that we have to be honest at the fact that most people that are caught up in IPO mania are euphoric about something that they believe exist called free money. And people are always going to like free money. I've never met anyone that turns down free money. And I've never met anyone who, if they think they're rounded or can smell what they believe to be free money, doesn't ask me how they can get themselves some of that. I get it. I do understand human nature well enough to know that. I just want to be clear that the problem is not that free money is bad. It's that free money doesn't exist. And worse, it's seductive

because you start to believe it exists. And then you start to do things outside of IPO mania with your portfolio that are delusional and they come with a high incentive to believe things that are falsities. And I do not want that for any of you, whether your clients of ours or not, And so IPO mania is symptomatic of a bigger issue that I'm concerned about, and that is believing a lie, believing a delusion. A hot IPO may run. It may run up huge. Maybe as we're listening to all this right now, that's exactly what's happening.

I don't know. But that doesn't mean it was free. The sooner we understand this immutable law of risk-reward symmetry, law never to be repeated by the lies your friends tell you at poker night, the sooner we can get focused on that. which truly delivers value over the long term. Discipline, prudent, wise investing. That's the end to which we work at the Bonson Group.

Thank you so much for listening to this IPO mania Dividing Cafe. Have a wonderful weekend. I'll be back with you from New York in the Dividendon Cafe on Monday. What an exciting week it's been. More to come. Thanks for listening. Thanks for watching. And thank you for reading the Dividend Cafe.

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