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Anthropic. OpenAI. SpaceX. It is hard to remember a group of anticipated IPOs that has generated this much excitement before even reaching public markets. These companies sit at the center of artificial intelligence, space infrastructure, and automation, themes that have captivated investors and dominated headlines for years. The enthusiasm is understandable. These are genuinely remarkable businesses working on problems that could reshape the world for decades.
The challenge for investors is that excitement and investment returns are not always the same thing.
There is an important distinction between identifying a transformative company and making a sound investment. A business can fundamentally change the world and still produce disappointing returns if expectations become unrealistic. Cisco was the backbone of the internet, but investors who bought at its peak in 2000 waited over two decades to break even. Similarly, while Amazon survived the dot-com bust and became one of the most dominant companies in history, shareholders who bought at the 1999 high endured an 80% drawdown and years of recovery.
The issue in each case was not the quality of the business. It was the price investors paid relative to the expectations already embedded in the stock.
By the time companies like OpenAI, Anthropic, or SpaceX reach public markets, their potential will not be a secret. Billions of dollars in private capital will have already flowed in. Sophisticated institutional investors will have analyzed every revenue line, competitive risk, and growth assumption. The valuations public investors encounter at IPO will already reflect enormous optimism about the future. For returns to justify such lofty prices, these companies will need to do more than simply grow. They must exceed the extraordinary expectations the market has already priced in.
History suggests that this is harder than it sounds. As the chart below illustrates, newly public companies in the U.S. have consistently underperformed comparable publicly traded firms of similar size and valuation over their first five years after listing. The gap is not trivial. By year five, comparable non-IPO firms outperformed by more than two percentage points annually on average. This pattern holds not because IPOs are bad businesses, but because the enthusiasm surrounding them tends to push valuations beyond what future growth can support.
Data from 1/1/1980 – 12/31/2024. Source: Avantis Investors. Data from Jay Ritter, “Initial Public Offerings: Updated Long-Run Statistics,” Warrington College of Business, University of Florida, March 23, 2026.
The point is not that investors should avoid these companies entirely or that innovation is somehow overstated. Some of these IPOs may ultimately justify even the most aggressive expectations. Nobody knows in advance. The lesson is that disciplined investing means being especially careful when excitement is at its highest. Concentrated bets on newly public companies driven by fear of missing out have historically been a poor strategy, even when the underlying businesses turned out to be successful.
A diversified portfolio already participates in innovation. Broad market exposure means investors benefit as transformative companies grow and earn their place in the market over time, without needing to speculate on which individual name will justify its IPO valuation. The goal is not to predict the next headline. It is to build a durable investment strategy that can succeed regardless of which company becomes the next dominant winner and which ones fall short.
Innovation changes the world. That does not mean investors need to chase every company associated with it.
Week in Review
- Kevin Warsh, the newly appointed Chairman of the Federal Reserve, was sworn in last Friday, May 22. The Senate confirmed him by a 54–45 vote earlier in the month, the narrowest confirmation margin for a Fed Chair since 1977. In recent months, Warsh has advocated for lower interest rates, arguing that an AI-driven surge in productivity and economic output could support easier monetary policy without generating significant inflationary pressures. Fed fund futures are actually pricing in a rate hike, as opposed to a cut, as the next likely move for the Federal Reserve, given the recent uptick in energy prices.
- Consumer sentiment, as measured by the University of Michigan Consumer Sentiment Index, declined to a record low of 44.8 in May. The sharp deterioration was driven in part by persistently elevated energy prices and rising inflation expectations, with households now anticipating long-run inflation of 3.9%.
- According to FactSet, 94% of the S&P 500 reported Q1 results as of May 21st. The earnings growth rate, blended between companies that have already reported and the estimates for those that have yet to report, now stands at 28.4%. This would mark the highest year-over-year earnings growth rate for the index since Q4 2021. FactSet also noted that the “Magnificent 7” companies reported actual earnings growth of 63.2% for the first quarter, with the other 493 companies growing their respective earnings at 17.4%.
Hot Reads
Markets
- Trump Picked Warsh to Cut Rates. Markets Are Bracing for the Opposite (WSJ)
- Consumer Sentiment Hits Fresh Record Low in May as Iran War Fuels Inflation Worries (CNBC)
- This Summer's Teen Job Market is the Toughest in Decades (WSJ)
Investing
- Is AI a Bubble? It's Starting to Get Soapy (Jason Zweig)
- Money Without Meaning (Ben Carlson)
- Why Stocks Sometimes Fall for No Obvious Reason (Larry Swedroe)
Other
- Why Diversification Beats Stock Picking - DFA (YouTube)
- How to be a Smarter Football Fan (YouTube)
- Why Saudi Arabia's $5B LIV Golf Experiment Failed - WSJ (YouTube)
Markets at a Glance
Fund Returns
Sector Returns
Factor Returns
Source: Morningstar Direct.
Source: Morningstar Direct.
Source: Treasury.gov
Source: Treasury.gov
Source: FRED Database & ICE Benchmark Administration Limited (IBA)
Source: FRED Database & ICE Benchmark Administration Limited (IBA)
Economic Calendar
Source: MarketWatch
- Competition, Achiever, Relator, Analytical, Ideation
Josh Jenkins, CFA
Chief Investment Officer, Principal
Josh Jenkins, Chief Investment Officer, began his career in 2010. With a background in investment analysis and portfolio management from his previous roles, he quickly advanced to his current leadership position. As a member of the Lutz Financial Board and Chair of the Investment Committee, he guides Lutz Financial’s investment strategy and helps to manage day-to-day operations.
Leading the investment team, Josh directs research initiatives, while overseeing asset allocation, fund selection, portfolio management, and trading. He authors the weekly Financial Market Update, providing clients with timely insights on market conditions and economic trends. Josh values the analytical nature of his work and the opportunity to collaborate with talented colleagues while continuously expanding his knowledge of the financial markets.
At Lutz, Josh exemplifies the firm’s commitment to maintaining discipline and helping clients navigate market uncertainties with confidence. While staying true to the systematic investment process, he works to keep clients' long-term financial goals at the center of his decision-making.
Josh lives in Omaha, NE. Outside the office, he likes to stay active, travel, and play golf.
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