IPOs should be approached with caution, Apollo top economist says

A person stands on the New York Stock Exchange floor beneath the NYSE sign and market data screens.

The AI hype seems endless, and investors are salivating at the chance to finally buy stock in some of the biggest names in the industry.

But as Anthropic and OpenAI prepare to go public, and as SpaceX stock struggles after a historic IPO, there’s reason for investors to tread carefully, Apollo’s top economist, Torsten Sløk, says.

SpaceX kicked off the summer with the largest IPO ever, setting the stage for this year’s deluge of stock offerings from some of the most coveted private tech companies.

But as a chart shared by Sløk shows, recent history suggests the stock of newly public companies is risky bet in the years following an IPO.

Bar chart from Apollo shows IPO returns underperforming the market since 2019, with steep declines from 2020 to 2024.

Since 2019, the market regime that’s influence the post-IPO stock performance of companies has been characterized by three things: “peak valuations,” “a hostile rate regime,” and “low quality, high bar,” Sløk said.

“The boom pushed marginal companies public before they were ready while the market-adjusted benchmark was set against an index carried by a handful of mega-cap winners,” he wrote.

The economist highlighted that this was particularly true during the pandemic-era boom of 2020 and 2021. The combination of zero interest rates and high retail demand fueled by government stimulus created an environment that sparked rich valuation for companies rushing to go public.

Now a new wave of mega-IPOs is taking shape, as OpenAI and Anthropic prepare to debut. Despite some concern about their high valuations, investors excitement is high.

Other market pros have raised similar concerns about the rush to public markets. Economist and IPO-market veteran Jay Ritter told Business Insider that history suggested that SpaceX stock would underperform. His call has proven accurate about six weeks after the offering, with the stock down the stock down about 18% from the $135 IPO price.

“Each of these forces could persist,” Sløk added of the factors that hobbled the IPOs in the years after 2019. “Valuations may re-inflate in the next IPO window, rates look set to stay structurally higher than the 2010s and index returns remain concentrated in a few mega-caps that keep the relative bar high.”

Samuel O’Brient is an experienced financial markets and business journalist who has written extensively on a wide range of topics involving economics, technology and public policy. At Business Insider, he covers important macro and micro economic stories, including takes from leading economists and hedge fund managers, breaking IPOs, corporate bankruptcies, meme stocks and short-selling. He also writes on other markets such as crypto, oil and real estate.He has interviewed many of the market’s most influential voices, ranging from top economists such as Mark Zandi and Richard Thalerto prominent investors including Danny Moses, Andrew Left, Anthony Scaramucci, Louis Navellier and Grant Cardone.Programs such as LiveNOW from Fox , Taking Stock and Ticker News have had Samuel on to discuss stock market and economic developments. His reporting has been cited by The New York Times DealBook, Bloomberg Radio, Forbes, Entrepreneur, Gizmodo and TheFutureParty.Samuel began at InvestorPlace, covering investing, retail trading and macro economic trends. Prior to joining Business Insider, he served as a technology markets reporter at TheStreet. He is a graduate of Sarah Lawrence College and Trinity College Dublin.Samuel’s work has appeared in publications such as TipRanks, EV and Observer. When he isn’t chasing down stories, he can often be found browsing book and record shops. To reach Samuel, email him at sobrient@insider.com or connect with him on LinkedIn. He is also on Signal as Samuel Clemens. Popular Articles: A Nobel economist has a warning for meme stock tradersThe business school dropout who kicked off the Beyond Meat rally wants you to know he’s not Roaring Kitty 2.0 A top economist who thinks we’re on the brink of a recession says he’s eyeing these 3 warning signs Trump’s 401(k) executive order marks big changes for retirement savings — and possibly puts your money at risk Why hedge fund icon Ray Dalio says you shouldn’t invest in real estate in this economy AI bullishness is soaring, but pros see a major opportunity brewing in an overlooked corner of the market