Transcript:
Caroline Woods
SpaceX is expected to go public this week. Anthropic is waiting in the wings. OpenAI could be next. Some are calling this the biggest IPO wave of our lifetime. But for the average investor watching this unfold, what is the biggest thing they need to understand? Jim Neeson is managing partner, Connor Group and joins me now. Jim, great to have you here, Caroline.
Jim Neesen
Thank you so much.
Caroline Woods
So, Jim, your company helps companies prepare for public markets. So just to kind of kick things off, what feels different about this IPO wave that’s approaching?
Jim Neesen
Yeah. You know, I think a lot of it is these are companies that have been preparing for the past 2 or 3 years, and they’re really looking for market conditions where they can go out there and really be receptive for both institutional investors, but also the retail investors. And you’ve really started to see that as we move through this year.
Jim Neesen
We’re currently at 163 IPOs. We’re in a 15% increase versus last year. Last year was a rebound year. But now you’re starting to see this retail participation in stocks. And I think that’s an exciting thing for the back half of this year.
Caroline Woods
We’re talking about a massive amount of money though in new listings. Is Wall Street prepared for that kind of volume?
Jim Neesen
Yeah, I think they absolutely are. I mean, the good news is they’ve had a long time to prepare for this. These are IPOs have been signaled for more than a year. The $200 billion that’s going to be raised by SpaceX and OpenAI, and anthropic is about 0.3% of the S&P 500. So if you put it in context, liquidity will not be the real issue here.
Jim Neesen
You also have $8 trillion in money market funds, mutual funds, and then you have retail investor participation as well. So I think these will be absorbed quite well in the market.
Caroline Woods
But I think there’s also this concern that does it bring new money to the table, or does it take away from other equities. And you know, I already heard speculation that that was happening on Friday when we saw that big pullback. So is the expectation that that it would just be money coming out of other AI and tech stocks and going into these new things, or is it new money that’s going to come?
Jim Neesen
You know, I think the reality is it’s going to be both. You know, it’s sort of you will see there has been so much dry powder of money on the sidelines that have been waiting for an investment. So I think that’s one part of it. The second is you do have a reallocation. You will have, you know, sort of different mandates where institutions are saying, I’m managing risk, right.
Jim Neesen
I have a new offering coming out, so they’ll rebalance portfolios just as an individual investor would as well, hopefully as they make an investment. And I feel like this.
Caroline Woods
So space is debuting on Friday with a staggering $1.75 trillion valuation. Morningstar came out, though, and said its fair value is essentially half of that. So for a retail investor, listening in and anticipating this IPO is a valuation that massive a historic opportunity to get in early, or is it a warning sign to you?
Jim Neesen
Yeah. You know, so there’s sort of two schools of thought here that reminds me a lot of when my mom would buy me sneakers when I was a kid. Do you buy ones that just fit right, which means the valuation matches today’s financials? Or do you buy one that have extra growth room inside of it? Right. Because, you know, there’s sort of this I’m springing up in terms of my height.
Jim Neesen
What I like about sort of this opportunity is you have a conglomeration of businesses together, right? You have the space business, you have the satellite business, you know, you have sort of the the AI business and the data center piece, the real effect. You’re looking at the roadshow. This really is about vertical integration. It’s about the ability to sort of have a daily shuttle going up next year, dropping off these satellites that are the size of busses, and then doing data center activity from free energy from the sun and beaming it down, you know, to sort of power the next internet out there.
Jim Neesen
I think that’s quite unique. If an investor is comfortable with sort of a multiyear horizon, I think this could be a great investment. It could even be five, ten years. This is sort of the next Thomas Edison of business is out there. And so I think there is a significant opportunity out there for a lot of investors.
Caroline Woods
Sonali Basak was on last week and she said pay attention to the lock up period, though. Explain a bit more what specifically we should be paying attention to and what the implications there are.
Jim Neesen
Yeah. So, out of the gates, there’s 75 of $1 billion being raised, right? One third of that is for retail investors.
Caroline Woods
Which is notable.
Jim Neesen
It is unprecedented. I mean, that is a tremendous size. Many most retail investors will be able to participate through one of five brokerages. But I think what you also have out there is, you have the day one trades where there’s a lot of volatility. We saw that at Cerebus, right. You know, as I moved around the lock period is right now venture capitalists have about $1 trillion of paper gain when these three companies go out and go public.
Jim Neesen
But they cannot sell their stock until six months after the IPO. That’s called the lock up period. It’s because there’s this price discovery process. You want sort of the retail investors and the markets to figure out what the company is truly worth before you have a flood of shares. So that one has what happens is after six months, a lot of the institutions can choose to sell.
Jim Neesen
A lot of them want a lot of them will hold and see this as a many year horizon in terms of their investment. But for a lot of retail investors, there is significant opportunity, with many more shares coming onto the market after six months.
Caroline Woods
We’ve also had people like Ross Gerber come on Dan Ives and say ultimately in 2027, SpaceX and Tesla will merge. So what will that mean for SpaceX shareholders or for Tesla shareholders? And, you know, do they need to get in if eventually they might own a piece of space?
Jim Neesen
Yeah. You know, I mean my and our analysis of Connor Group is it looks highly probable. And I think there’s a lot of reasons it makes sense. Tesla has manufacturing. Tesla has batteries. Tesla has the ability to sort of, scale robotics as well. Those are things that SpaceX is looking for. They already have the Terra Fab two, right?
Jim Neesen
That’s a $25 billion mutual investment that manufacturing brings chips onto U.S. soil. So I think there’s a lot of reasons this makes sense to not have Tesla negotiate against itself with SpaceX. Now, for investors, you mentioned, should they be investing in a Tesla or not? I think I’ve seen some analysis of this could be a little bit of a reprieve, right, of because the some of the, the numbers in the analysis on car sales has been decreasing in Tesla.
Jim Neesen
But I think Tesla is much more than the cars. I think that manufacturing the robotics and the chips is that next piece of the wave of why this makes sense as a vertically integrated company.
Caroline Woods
So if I decide to wait a year and wait for it, that merger, potential merger, if it’s likely, is just the risk that you miss out on potentially the first year of gains, or is that maybe playing it safe?
Jim Neesen
Yeah. You know, I think it’s a hard call. I think in a lot of ways people are sort of seeing the space investment as sort of one that there is the opportunity now to get into, I think for Tesla investors, a lot of their valuation, I think they’re 1.5, 1.6 trillion is based off a future earnings.
Jim Neesen
And I think for a lot of them, this could make more sense to have the businesses come together. So I think for a lot of diehard Tesla investors, this could be a way to even get more diversification into a business that’s quite future oriented.
Caroline Woods
We talked about it being notable that 30% of space will go to retail investors. It’s also going to be included in the Nasdaq much quicker than otherwise. It would have not the S&P 500. But what should the everyday retail investor do with their 401 K’s and IRAs in light of some of these changes, given the fact that, yes, Elon Musk has a good track record, but space is unprofitable.
Jim Neesen
Yeah, yeah, yeah. I mean it’s interesting. You know, they they’ll they call Elon Musk the next Thomas Edison. But as you noted, especially when the I x8 I got wrapped in it went from a profitable satellite business to an unprofitable conglomerate. I do think, you know, for, for the business, there is much future opportunity, you know, to sort of, have this the growth path and is sort of moving into the business.
Caroline Woods
So what should what should the retail investor do as they think about their four one case IRAs? And it’s not just, space. It could be potentially anthropic. Yeah. OpenAI.
Jim Neesen
So a couple things is for a lot of for one k investors it’s going to happen automatically. So if you are if your mandate is you’re investing in indexes, right. You mentioned that the Nasdaq composite, the Nasdaq 100, it will automatically have your 401 K invested into these businesses. So that’s one thing you can do and you can really understand how was my for one k being invested.
Jim Neesen
And do I have concerns on that or not. I think you know, there is also the ability right now if you try in your brokerage to invest in space X shares, you cannot use your for one K to invest live for brokerage accounts. So I think the conscious decision you can’t make it. But there might be sort of a automatic, investment that’s happening for you as you get added to the indexes.
Caroline Woods
This is an IPO wave unlike any other. We know that it’s historic, but we’ve seen a lot of buzzy names come public and some do really well and others don’t. So what is it that separates those who do well after day one or after the first, you know, few days of trading and those who don’t?
Jim Neesen
Yeah. You know, you look at the performance this year, half of the IPO’s are trading above their IPO price. Half of them are below. You look at last year the dynamics were almost the same.
Caroline Woods
So 5050 isn’t.
Jim Neesen
The.
Caroline Woods
Best off.
Jim Neesen
It’s a coin flip so it really isn’t. So you know the question is well what makes a company unique in terms of being able to sort of drive up its price. Maybe three things will put out there. Beat and raise has been a mandate, you know, for companies forever on the exchanges. So ones that really have visibility on what their future revenue is and the ability to sort of put out numbers that they have, the discipline and the guidance to beat and raise.
Jim Neesen
I think that’s kind of the first point. You have seen companies that have gone out where they look to push their stock price as much as they can to sort of, you know, to minimize the dilution when they go public. I think that’s something that is a challenge as well, because if they go out at the top end of the range or if they even expand their range, often there’s not as much breathing room, right, to have sort of market dynamics and ups and downs.
Jim Neesen
And I think the third is what is their generation two and three products. I think companies I mean, we’ve taken Tesla and Uber and Lyft and Palantir and Spotify Public. It really wasn’t those initial, products and services on. There’s one it actually was Gen two, Gen three and Gen four. I think that’s the really key thing, is, can the company not be a one trick pony, but really look to expand into future opportunities?
Caroline Woods
And we mentioned the fact that space is unprofitable. There was a time just a couple years ago that investors didn’t want to touch unprofitable companies. So does the AI enthusiasm that we’re experiencing today feel healthy, or does it start to feel like a bubble or frothy?
Jim Neesen
Yeah. You know, I mean, I think right now The Magnificent Seven have, 750 billion committed to AI spending. And I think Gardner’s had estimated about 2.5 trillion of AI spending. So that’s a big question. Is, is that sustainable? Is that committed in the marketplace? The view that that I’ve really sort of adopted is this is kind of that fourth industrial revolution.
Jim Neesen
Right. And and this is something that’s not just a.com bubble or other markets out there. This is actually a very fundamental shift in how enterprises and humans will interact. So it feels like especially with these type of investments happening and companies going out there, that there’s going to be a substantial long term legs on this. It’s not just a fad.
Caroline Woods
What’s the biggest mistake retail investors make during hot IPO cycles?
Jim Neesen
You know, I say the biggest mistake is not having a strategy of how you want to invest. We just mentioned that IPOs can be a coin flip. Right. And so when is the right time to buy and what are the right companies to buy up. What kind of maybe 3 or 4 strategies out there for the retail investor?
Jim Neesen
One is there are private markets. You can go out there and buy some shares in the private markets. Typically they can be quite high in terms of value. But that’s one option. We mentioned. The day one opening price that’s happening right now is space right. You could buy as little as one share, but you can participate and get it at the price the institutions get.
Jim Neesen
That’s kind of rare. Typically, most retail investors will be boxed out because people have the stomach for the day one trade where they put in the market order. That’s not necessarily for me, but that’s the one where you can get it caught up in sort of that, that momentum that you mentioned sort of waiting maybe 3 or 6 months, but to the lock up period, that can be a really good strategy.
Jim Neesen
Wait, sort of see how the price settles out, but then know that more shares will come on the market, you know, after six months and then the last dollar, average costing. I think that could be something, which is, hey, every month I’m going to put a fixed amount into the marketplace. But I would say this is a risk asset.
Jim Neesen
Make sure that your portfolio can really sort of absorb the volatility, and make it where you’re not overextending yourself.
Caroline Woods
And just finally, everyone talks about valuation, especially when it’s upwards of $2 trillion. But when you’re evaluating a company and deciding if and when they’re ready to go public, what are the signs that you’re looking for that they’re truly ready.
Jim Neesen
Yeah. You know, I think the first is, there is a lot of sort of blocking and tackling that a company needs to do that. No one sees behind the scenes. I mean, we have over 100 clients right now looking to go public in 26 and 27, but they’re not hitting the press. They’re not hitting the radar.
Jim Neesen
That readiness piece is really important. Right. So it’s not just sort of, a quick decision that they’re making on the market. They have actually really looked to invest, build out the infrastructure and build out the thoughtfulness on it. I think the second piece is can they really forecast their business? And that’s something we talked about. Right. Beeton raises a really key mandate out there.
Jim Neesen
And then I think the third is do they have a story that is going to be receptive to retail investors and institute institutional investors about generation to generation three of the business? Right. Do they really have a plan out there? That’s a really critical thing. Last comment I’ll make is I think understanding the business and story really goes a long way.
Jim Neesen
Right? You know, often I’ll look at a company six, 12 months before and really start to understand the business and layman terms, not necessarily the business jargon.
Caroline Woods
So the takeaway for retail investors, as we kind of sum all of this up is what.
Jim Neesen
Yeah, I think for retail investors is, number one, be really thoughtful about how you want to participate in IPO’s. Is it specific shares as it indexes. There’s different ways to do it, but make it a thoughtful part of your, of your portfolio. I think the second piece is, you know, really start to understand the business that we talked about.
Jim Neesen
I, I think one of the best things to do is start to bring it into your life. If you really start to understand these products and services, then you can have a much clearer picture of how it’s going to fit into the future.
Caroline Woods
So if I want in at the $135 share price, because usually you see an IPO and you’re like, well, I can’t get it for that price. So if I went in at 135, what do I need to do?
Jim Neesen
Yeah. So the party is open. I mean, there are five brokerage firms. So it’s Schwab, fidelity, E-Trade, Robinhood and so many that all have shares available that people can invest in. What you need to do is in that brokerage, they will actually ask what’s called the participation of interest, where you literally click and say, hey, I want to buy one, share ten shares, 100 shares.
Jim Neesen
They will then sort of process all of the available shares that they have to look at, sort of their investor base, and then they’ll contact you on this Thursday and say, hey, Caroline, you’re available for either everything you ask for and maybe a partial amount. You will confirm that. And then on Friday, you will be able to purchase the shares at the $135.
Jim Neesen
The advantage of that is then you’re not sort of beholden to putting in a market order. And the price could go wild on day one. And that’s what’s happened with a lot of other IPOs. So this is a very approachable IPO. There are a lot of shares out there, but you do need to be thoughtful of work with your brokerage.
Jim Neesen
Put in that documentation. And then make sure you have the cash available on Thursday that it can be purchased.
Caroline Woods
All right, Jim, time to transition to our rapid fire game of this or that. Quick questions. Quick answers. Are you ready?
Jim Neesen
I’m ready.
Caroline Woods
All right. Here we go. IPO boom or IPO bubble boom OpenAI or SpaceX space. SpaceX or anthropic.
Jim Neesen
SpaceX.
Caroline Woods
OpenAI or anthropic.
Jim Neesen
Anthropic.
Caroline Woods
AI software, AI infrastructure.
Jim Neesen
Infrastructure.
Caroline Woods
Private markets or public markets?
Jim Neesen
Private markets.
Caroline Woods
How come?
Jim Neesen
You know, I would say that the private markets right now are going to be propelling the public markets in the back half of 26 and 27.
Caroline Woods
Best I pick and shovel play.
Jim Neesen
I would say, there are going to be some data center companies. They’re going to be out there that are going to be really, harnessing all these investments.
Caroline Woods
Private data center companies that will come public.
Jim Neesen
Yes.
Caroline Woods
I trade earlier, overheated.
Jim Neesen
Overheated one.
Caroline Woods
I trend investors still don’t fully understand.
Jim Neesen
That we’re in the third inning, that there is massive, upside room. That is. And it isn’t a fad. It isn’t a trend.
Caroline Woods
Space IPO on iPod. Higher or lower than 135. Much higher a week later. Higher or lower?
Jim Neesen
Lower than day one, but I think higher than 135.
Caroline Woods
Six months after lockup. Higher or lower.
Jim Neesen
I’m going to say higher. I think, the Elon fad will drive a lot. All right. All right. The Elon, momentum, excitement.
Caroline Woods
You’re going to say higher because way.
Jim Neesen
Oh, I think just a lot of the people who really believe in his future vision that he is the next Edison. They’re going to be long term investors not looking this out.
Caroline Woods
We’ll leave it there gymnasia and really appreciate it. Thanks so much for playing along. That’s Jim Neeson, managing partner at The Connor Group. If you enjoyed this street talk, check out our full interview with Ken Mahoney where he reveals what to buy on the next market pullback.
