Comment by harmmonica
10 days ago
Do I have this right that there have been no or at least very few pure AI IPO's during this cycle (I can't actually think of a single one)? So it's dissimilar to dotcom in that regard because during that time countless dotcoms went public with sky-high valuations and then failed. A bunch of reputable companies also went or were already public during that time and those saw huge valuation drops so that's more analogous to what could happen in the public market (NVDA, for instance, could pull a Cisco and drop "catastrophically," but survive just fine).
That would cause a lot of pain for those shareholders, but would that be somewhat contained given the public "AI" companies for the most part have strong businesses outside of AI? Or are these market caps at this point so large for some of these AI public companies that anything that happens to them will cause some kind of contagion? And then the follow up is if the private AI companies collapse en masse is that market now also so big that it would cause contagion beyond venture capital and their investors (fully aware that pensions and the such are material investors in VC funds, but they're diversified so even though they'd see those losses maybe the broader market would keep them from taking major hits).
Not giving an opinion here, though my knee jerk is to think we're due for a massive drop, but I've literally been saying that for so long that I'm starting to (stupidly) think this time is different (which typically is when all hell breaks loose of course).
IPOs aren't what they once were. The burden of being a public company has increased (SOX and related public company costs are $5-10M/year), so companies are far more likely to stay private. That has created a positive feedback cycle as the private funding ecosystem has become increasingly robust, which is why you see so many $100B+ private companies.
Also keep in mind that the biggest companies during that bubble had peak market caps of ~500B and then lost ~90%, so 400-500B in losses each and total internet related losses of a couple trillion. If NVDA lost 90%, it would be down 4 trillion dollars, or twice that total just by itself.
AI company valuations collapsing would have meaningful impacts on the broader market. Big pension/mutual funds are important sources of capital across every sector, and if they're taking big losses on NVDA, GOOG, and a portfolio of privates, it will have a chilling effect on their other activity.
The costs are a weak argument. The more stronger argument for why they arent going public any time soon is that OAI in particular is a corporate governance nightmare, in which the way they transmit information about their firm and financials will have to completely change.
Theres also plenty of money washing around in private markets so no need to go public. Staying private is an advantage.
There aren't very many IPOs in general. There were about 8000 publicly traded companies in the US in Jan 2000. Today there are about 3950. A lot of the AI related IPOs have been the infra like CoreWeave and Nebius.
This time is always different, until it isn't.
However, it is different from the internet bubble partially for the reason you describe.
There have been a few IPOs, but they perhaps happened earlier in the cycle, or companies are pivoting into AI. I'm thinking companies like Palantir, which was always AI, or Salesforce which is making a big AI pivot.
Most of the funding is not coming from public sectors. There is so much private capital available that it isn't necessary. I believe the bubble is in VC, which some would think is find because it protects public markets from the crash, but I'm not sure that is correct.
When the VC money stops flowing into AI, I think it will send a shockwave through the public markets. The huge valuations of companies like OpenAI, Anthropic, etc will be repriced, which will probably force a re-pricing of public darlings like Palantir, Microsoft, NVIDIA.
If VC funds aren't buying NVIDIA chips and building data centers, everyone will feel the need to re-price.
It's emotional, not logical.
It may be true that OAI et al are raising money in private markets, but does that matter? Ultimately they are still just raising money. Ultimately returns need to show up. You cannot escape that. If you cannot do that nobody will eventually supply the funds to keep operating.
The big advantage of staying private is controlling the narrative.
Because the comment was specifically pointing out that this doesn't seem like a bubble because there aren't many IPOs or public pure play AI companies.
Historically, the worst busts following the bursting of an asset price bubble, in terms of real economic impact, have been from debt fueled bubbles (Great Depression, Global Financial Crisis). You can read Hyman Minsky and Irving Fisher for a detailed analysis of why, but it mainly comes down to the fact that the financial obligations remain once prices and expectations have reset.
Then you have the busts that follow public equity fueled bubbles (Dotcom crash). Nowhere near as bad as the former, but still a moderate impact on the economy due to the widely dispersed nature of the equity holdings and the resulting wealth effect.
What we have now is more of a narrowly held private equity bubble (acknowledging that there's still an impact through the SP500 given widespread index investing). If OpenAI, Anthropic, Perplexity, and a bunch of AI startups go bust, who loses money and what impact does it have on the rest of the economy?
How was Palantir always AI?
there is no way they could raise that much money from public markets.
Also, there s no need to invent new tech names anymore. Marketing can add "AI" to the company name, or (as they say), change the wording from "Loading..." to "Thinking.."