AI firms are staging IPOs to collect billions in capital. But where will the money come from \u2014 or go? <\/p>\n
There\u2019s an old gambler\u2019s aphorism beloved by wise souls from Amarillo Slim to Warren Buffett that warns: \u201cIf you look around the poker table and can\u2019t identify the mark, it\u2019s you.\u201d<\/p>\n
Investors might be well advised to keep this thought in mind over the coming months. That\u2019s because mega-initial public offerings from the widely followed artificial intelligence firms OpenAI and Anthropic are lined up for takeoff. <\/p>\n
Public enthusiasm for these IPOs has been stoked by relentless PR about how AI is certain to change our lives, as well as by a gain in the first couple of trading days after last week\u2019s SpaceX IPO, which was goosed by the Elon Musk company\u2019s claim that it would ride the AI wave into the limitless future. <\/p>\n
New issues have special salesmanship behind them, which calls therefore for a special degree of sales resistance.<\/p>\n
\u2014 Value investing guru Benjamin Graham on IPOs (in 1949)<\/p>\n
(Never mind that the gain largely evaporated Monday, when SpaceX shares fell to $154.60 \u2014 well below their closing price of $160.95 on their first day of trading on June 12.) <\/p>\n
There are many reasons for the average investor to look askance at initial public offerings generically; more on those in a moment. But some are specific to the AI field, especially just now. The rush to public stock listings suggests that AI insiders sense that we are approaching peak AI \u2014 more specifically, that the AI bubble is about to burst.<\/p>\n
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Commentary on economics and more from a Pulitzer Prize winner.<\/p>\n
By continuing, you agree to our Terms of Service<\/a>, which include arbitration and a class action waiver. You agree that we and our third-party vendors may collect and use your information, including through cookies, pixels and similar technologies, for the purposes set forth in our Privacy Policy<\/a> such as personalizing your experience and ads. <\/p>\n To be fair, concerns about whether AI even has been a bubble have percolated for months. I joined that camp almost a year ago<\/a>, after OpenAI\u2019s then-most recent chatbot, GPT-5, turned out to be an underwhelming bust. <\/p>\n Since then, however, signs that AI has been oversold as a world-changing technology have proliferated. Let\u2019s take a look.<\/p>\n First and foremost, many businesses that went all-in on AI have discovered that the vaunted cost-savings its promoters promised have been chimerical at best. <\/p>\n Some that pared their human workforces in favor of AI bots have had to rehire fired workers, according to Forrester Research<\/a>. More than half of the firms surveyed by the British software consultancy OrgVue<\/a> last year acknowledged that the firings were mistakes. AI critic Will Lockett dubs this the \u201cAI boomerang effect.\u201d<\/a> <\/p>\n Corporate customers have reeled at the real costs of AI, which they discovered after Anthropic and other firms migrated from flat subscription fees to \u201cper-token\u201d fees, which charge by usage. <\/p>\n In a podcast in May, Uber Chief Operating Officer Andrew MacDonald said the company had not seen productivity gains commensurate with its spending on AI<\/a>. And its chief technology officer said in April that Uber had spent its entire 2026 budget for Anthropic\u2019s Claude platform by mid-March. <\/p>\n Expectations of the proliferation of AI across industries and in consumer applications were premised on a massive build-out of the data centers needed to support the technology. But most of the promised centers have run into snags. Local residents have turned out in force to resist the gargantuan installations \u2014 and their political leaders are listening<\/a>.<\/p>\n Physical obstacles also have emerged. Local and regional electrical grids don\u2019t have the capacity to fill the voracious power demands of big centers. Crucial electrical equipment is also in short supply. As Bloomberg reported, almost half of the U.S. data centers that were planned for this year are destined to be delayed or canceled<\/a>. JPMorgan Chase has found that nearly two-thirds of the centers that were slated for completion next year haven\u2019t yet broken ground<\/a>.<\/p>\n Despite all this, the AI industry\u2019s demand for capital has been unrelenting. Anthropic said on June 1 that it had made a confidential filing with the Securities and Exchange Commission for an IPO that may come before the end of the year. OpenAI is known to be contemplating a similar approach but hasn\u2019t yet filed. <\/p>\n The sizes of the projected IPOs haven\u2019t been made public, but they are likely to be based on the putative value of the companies in the private markets: Anthropic last month raised $65 billion from venture investors at a valuation of $965 billion, and OpenAI\u2019s private market value is about $852 billion. <\/p>\n Neither company has yet reported a profitable quarter. Indeed, audited figures published last week by financial blogger Ed Zitron<\/a> and the Financial Times<\/a> indicate that OpenAI lost a staggering $38.5 billion in 2025 on revenue of $13.1 billion. (I asked OpenAI whether these figures were accurate but received no reply.)<\/p>\n Where the money will come from to cover these losses and power the industry ahead is an open question. But their appetite for capital appears to be insatiable; Monday, only days after raising $85 billion in its IPO, SpaceX launched a $20-billion bond issue. <\/p>\n That brings us to the general pitfalls of IPOs for ordinary investors. <\/p>\n In the public mind, IPOs can be opportunities to get in on the ground floor of high-flying new ventures. The reality differs from the expectations, especially in the short- and middle term. The most recent IPO frenzy before now, the dot-com era of 1999-2000, tells the tale. In 1999, more than 480 companies went public, including about 289 internet companies. Three-quarters of the latter were unprofitable at the time of their IPOs. <\/p>\n That was the \u201chighest concentration of money-losing IPOs in history,\u201d by the reckoning of venture investor Trace Cohen<\/a>, but that didn\u2019t seem to stem the enthusiasm. About half of the 1999 IPO class went bankrupt by 2001, including one-time big names such as Webvan and EToys. An additional 20% were eventually acquired for less than the IPO price.<\/p>\n Those who view IPOs as stepping stones to great wealth, as it turns out, are making a category error. The IPO is typically a liquidation event for the benefit of founders, early investors and other insiders. They\u2019re seizing the opportunity to cash out by selling their shares. <\/p>\n Accordingly, some of the smartest and most successful investors avoid buying into IPOs. Among them is Warren Buffett, the quintessential \u201cvalue\u201d investor. <\/p>\n