What Are The Hidden Risks of Giant IPOs?

Plus: Whose wood chipper is it anyway?

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Cheddar's Big Business This Week
May 21, 2026

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SpaceX $SPACEX ( ▼ 0.02% ) , Anthropic $ANTHRP ( 0.0% ) and OpenAI $OPENAI ( ▲ 4.64% ) are all poised for or filing for IPOs over the next few months, and under new quick-entry rules, they will swiftly join the Nasdaq-100 stock index. Passive funds, the ones that invest in the indexes that are now dominated by very large cap stocks like the MAG-7, no longer outperform the market, they are the market, accounting for well over 50% of all investments in U.S. stocks:

(Google)

Passive funds have to buy every stock in the index, in proportion to its weight in the index. So, what happens when Space X, with its $1.75 trillion valuation, and the forthcoming IPOs of AI giants OpenAI and Anthropic, all hit the market in the next few months? 

BBTW columnist Peter Green talked with Cam Harvey, a Duke University finance professor, a partner in investment manager Research Affiliates, and the author of a recent study entitled “Passive Aggressive: The Risks of Passive Investing Dominance.” 

Harvey warns that the rush of giant private companies to public markets will leave ordinary investors buying at premium prices, reserving earlier gains for wealthy “qualified investors.” Harvey says the rise of passive investing and index-fund demand may distort price discovery and increase systemic risk.

Your recent work on what you call "passive aggressive investing" feels especially timely with the SpaceX, OpenAI, and Anthropic IPOs on the horizon. What's the core problem you see with mega-IPOs?

The SpaceX IPO is looking to raise at least $75 billion, and the overall capitalization of SpaceX will be $1.75 trillion, which means what is going to the market is about 4% of the value. Passive investors, such as index funds, need to include this in their portfolio. So just given that expectation—and the supply and demand constraint—there's going to be pressure on the price to go up. So the retail investors who can buy this will likely be paying a premium, just because the passive investors have to buy. That means the expected return will likely be low. But that's certainly not the experience of qualified investors, who were able to buy this stock many years ago and have benefited from the appreciation already.

So wealthy and institutional investors win twice — first by getting in early, then by selling into demand created by index funds?

This is a situation where the definition of qualified investors just creates inequality. It tilts the playing field towards the big investors, which include hedge funds. It just doesn't seem fair to me. The 1933 Securities Act was designed to protect investors, given what happened in the late 1920s, but at this point, I think we need to revisit this to allow for a different criteria to be a qualified investor. For example, some sort of education rather than just money. I'm concerned about this benefiting large investors that have the resources to get in early. But the average investor will be faced with buying the stock, if they choose to do so, at a premium price.

More giant tech IPOs are coming — Anthropic, OpenAI. Nasdaq recently changed its rules to fast-track these into indexes. Does that make the problem worse?

That's exactly right. The quick entry rule has got this downside. So it's not just a quick entry. There is an exemption on the amount of float that's available. With SpaceX, it's only 4%. That's going to cause a problem because the index funds don't care that the Price/Earnings ratio of the company (its valuation relative to the revenue it’s bringing in) is 70 or 170. They just have to buy. It's not a decision, it's not discretionary. That creates competition for the shares driving up the price.

You write about what you call "the danger of synchrony." Can you explain what that means for ordinary investors?

53% of all investment is passive. And again, the passive investor doesn't care about any fund limits. It's completely irrelevant. Passive growth makes stocks move together, because when flows come in, they buy everything. And when flows go out, they sell everything. So what this does is create the possibility of increased systemic risk. When there's a breakdown, people are selling, then the index funds sell everything.

So that means volatility increases. So when correlations increase, think of — you've got a portfolio of stocks, and some have low correlations, some high correlations. If something happens to one stock, well, there's diversification, because there's other stocks that might do well, if one stock does poorly. But if everything's moving in the same direction, then there's no diversification.

If passive investing creates these problems, why can't active fund managers beat index ETFs?

Most active managers are unskilled. You can look at active mutual funds and see they don't outperform on average. But that doesn't mean you shouldn't invest actively. It just means you need to be careful what you buy.

How do you find an active manager worth trusting?

What you need to do is to understand what the active manager is actually doing. Does it make sense? And you can look at the track record, which is also informative. But the investment logic, I think, is the most important.

What does the math look like for someone buying SpaceX shares at the IPO price? The numbers SpaceX reported are a bit scary: A $4.9 billion net loss on $18.67 billion in consolidated revenue last year, one-fifth Tesla’s $TSLA revenue, and the AI unit generated only $818 million in the first quarter.

If you're buying at 70 times earnings, that's like double what Nvidia is. So you're buying something that's just twice as expensive as Nvidia. So what are the prospective returns for something like that? If you look at buying at a price-earnings ratio of 70, on average, that would suggest very low expected returns.

But those returns were great for the early investors. You've called for rethinking who qualifies as an accredited or “qualified” investor. The original intent was protecting less-informed people from risky investments — but is that logic still sound?

Even the retail investor can buy risky things like Bitcoin with leverage. That doesn't make any sense. Being “qualified” needs to be more about information. A high school teacher with a master's or even a PhD in biology has got an interest in biotech, but can't buy a biotech private equity stock because they don't make enough money. That makes no sense to me. We need to revisit that to get more retail investors qualified. 

What would a better system look like?

Look at what they do in the European Union. Being “qualified” can be about money, but it can also be about education: Either your educational level, or you take some sort of test on the basis of finance. I think that'd be a great thing to encourage people to actually learn about this stuff. And then they would have access to the outsized returns now reserved for the wealthy.

—Peter S. Green

(This interview has been condensed and edited for length and clarity)

Big Businesses mentioned this week

This week, big business!

The usual suspects

  • Whose wood chipper is it anyway? First came the farmers, now it’s the landscapers, who are suing John Deere $DE ( ▼ 5.19% ) , the agricultural equipment maker, for effectively fixing the price of repairs and maintenance on Deere’s big machines. By allowing only authorized repair firms access to the software tools needed to keep modern landscaping (and farming) machinery up and running, landscapers say Deere is forcing them to use franchised dealers who can set above market prices for parts and repairs. Farmers won a similar battle settlement fund. Landscapers now want the same thing. Right-to-repair activists have been battling everyone from Apple $AAPL ( ▲ 0.91% ) to toastermakers over the years, and have secured consumer protection bills in many states. But in big equipment, the right to repair hits at the very profit center of giants like Deere and Caterpilla $CAT ( ▼ 0.76% ) , whose profits come largely from spare parts. Shares in Deere were down 6% this week.

(Giphy.com)

  • Star(saving)bucks: The Seattle-based coffee giant says it’s laying off 300 corporate staffers, as part of CEO Brian Niccol’s push to recaffeinate the company. So far Niccol’s plan to focus on customers and the baristas who serve them seems to be paying off. Sales at U.S. stores opened for a year or more were up 7.1% in the first quarter from a year earlier, though last year’s sales were particularly weak. Niccol’s plan to remake the company by paying baristas more and renovating the often-bleak Starbucks $SBUX ( ▼ 2.23% ) shops is cutting into the company’s operating profits. Shares in Starbucks are up 25% this year.

  • Boeing’s sad Beijing Bag: As Boeing $BA ( ▼ 1.17% ) CEO Kelly Ortberg flew to China with President Trump last week, Wall Street investors and aviation watchers expected him to come back with an order for as many as 500 short-medium haul 757 Max 8s, and up to 100 787 Dreamliner and 777X long-haul planes. At an average sale price of $117 million to $135 million for the 737s, and $206 million to $338 million for the dreamliner, the whole order could have been worth up to $100 billion, cementing Beoing’s financial future. Instead, Ortberg came back with a deal for 200 planes. No small feat, but nothing like the permanent lifeline the original plan would have secured. Boeing shares fell as much as 10% after the smaller order was announced. 

  • Carvana’s (glass)-towering ambitions: Carvana $CVNA ( ▼ 0.8% ) , the online used-car giant, is quietly staking out a large footprint as a new-car dealer for the brands of Chrysler parent Stellantis $STLA ( ▲ 0.4% ) . Carvana offers new-car buyers the same haggle-free experience they offer to those buying used cars from their glass tower car vending machines. To get there, Carvana has bought a half-dozen Stellantis dealerships. Small beans so far, but now as Volkswagen $VLKAY ( ▼ 0.99% ) and Amazon $AMZN ( ▲ 1.3% ) join Tesla $TSLA ( ▲ 0.14% ) and Rivian $RIVN ( ▲ 3.06% ) selling new cars directly to customers, it could be a growing market. Stellantis on Thursday announced nine new models selling for under $40,000 as part of a $70-billion plan to revitalize the firm. Stellantis lost $25 billion last year, and has struggled to integrate its French, Italian and U.S. carmakers. 

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Tech times

  • Google’s AI Dominance: Fresh off a massive AI integration that’s introduced a new search box for the first time in  a quarter-century, Google $GOOGL ( ▼ 0.32% ) is taking a hardshot at OpenAI $OPENAI ( ▲ 4.64% ) and Anthropic $ANTHRP ( 0.0% ) to become the world leader in consumer-facing AI. A slew of new AI functions (waaaay too many to talk about here, but none were used to write this newsletter, obviously…) unveiled at its annual developer conference are positioning Google to stay profitable (its 2025 operating margin was 31.6%). It’s also joined forces with PE group Blackstone $BX ( ▲ 1.49% ) in a joint venture to provide cloud services to AI startups, using $5 billion of Blackstone’s cash to buy chips and other tech from Google. 

  • The Power Hour: Big data requires big energy, and the latest energy consolidation play is a big one: Florida-based NextEra Energy $NEE ( ▲ 1.61% ) has agreed to buy Virginia-based Dominion Energy $D ( ▲ 0.83% ) , for $67 billion in an all-stock deal that would create an East Coast giant to help power the AI boom. Dominion delivers power to 450-plus data centers, more than any other firm in the world, but its share price is down 13% over the past five years. That’s partly because of aging deals that sold power at pre-boom prices, and massive upfront investments in new powerlines and infrastructure. The combined company will have an enterprise value of $420 billion, giving it a lot more capital, just as new Virginia rules will force data centers into long-term contracts. NextEra’s offer was 23% above Dominion’s share price. 

  • Remember Iridium? Three decades on, the original satellite phone company is still there, with a fleet of low-earth orbit satellites $IRDM ( ▲ 0.93% ) . Now, it’s spending $368 million to buy the rest of a joint venture that tracks ships and airplanes. But the big play is a satellite data service that could compete with Elon Musk’s Starlink. And if it can’t, the company has some pretty valuable licenses to a sweet part of the radio spectrum that could be a  cash cow. Shares in Iridium were up 154% this year.

(Iridium)

  • Meta Layoffs. Another 10% of Facebook parent Meta’s $META ( ▲ 0.38% ) workforce will soon be pounding the pavement, with 8,000 layoffs (and no plans to fill 6,000 empty roles), as the company increases spending on AI, now set to hit $145 billion this year. CFO Susan Li said on an earnings call that execs “don’t really know what the optimal size of the company will be in the future.” That uncertainty and the vast AI spend have hammered Meta’s share price, with shares falling as much as 29% from January to March, before rebounding, but still down 8.2% this year, while the tech-heavy Nasdaq 100 index is up 15% this year. Layoffs are hammering the tech world, with at least 114,000 tech workers laid off at 148 companies this year, according to the optimistically named site, Layoffs.fyi

  • A Quantum of Handouts? In an effort to spur U.S. tech development, the Trump Administration is handing out $2 billion to nine tech forms racing to develop quantum computing. IBM $IBM ( ▲ 12.43% ) gets $1 billion, and all of the firms will hand the government a slice of their equity in exchange for the cash. Awardees include Global Foundries $GFS ( ▲ 14.92% ) , and a host of smaller firms, including closely held PsiQuantum, whose investors include Donald Trump, Jr.’s 1789 Capital. Their shares all shot up Thursday morning on news of the awards:

(Google)

  • OpenAI-and-Shut Case: It took an Oakland, California, jury less than two hours to throw out Elon Musk’s claim that arch-rival Sam Altman had stolen OpenAI $OPENAI ( ▲ 4.64% ) when he transformed it from a charity to a for-profit company. The jury ruled Musk’s lawsuit was filed too late, and Judge Yvonne Gonzalez Rogers dismissed Musk’s claims. The three-week trial riveted Silicon Valley with revelations that Musk romantic partner Shivon Zilis was consulting with him while serving on the board of OpenAI, and that Musk had in fact supported OpenAI’s shift to a for-profit model as far back as 2017. One memo from co-founder Ilya Sutskever described Altman as a liar who pitted executives against one another. OpenAI lawyers also contended that Musk brought the suit to protect his own AI firm xAI, that is lagging in the race for AI dominance. Musk did not take it well on Twitter, in a since-deleted post on X, calling Judge Gonzalez Rogers “a terrible activist,” adding, "She just handed out a free license to loot charities if you can keep the looting quiet for a few years!" The verdict paves the way for OpenAi to proceed with filing for an IPO, which CNBC says is being prepared with Goldman Sachs $GS ( ▲ 0.62% ) and Morgan Stanley $MS ( ▲ 1.39% ) , and could come as soon as this weekend, competing with Musk’s own IPO for SpaceX $SPACEX ( ▼ 0.02% ) , which includes xAI. 

Trumplandia

  • Home Economics: The bombing campaign against Iran, and the knock-on effects on the global economy are starting to hurt the president’s economic standing with voters at home. A new poll out this week shows rising disapproval of the president’s approach to handling the economy, even among Republicans. Although 1% of Democrats apparently still think he’s doing a good job, apparently:

    (Google)

    New Fed chair Kevin Warsh will find it hard to lower rates thai year, as inflation hit an annualized 3.8% last month, nearly double the target 2% rate. “Steady labor market conditions alongside rising inflation risks increase the odds of a rate hike as the next policy move,” EY-Parthenon chief economist Gregory Daco wrote in a note on Wednesday. Housing problems are also hitting home: Rising mortgage rates, now at 6.63% for a conforming 30-year loan, sent mortgage applications falling 2.3% last week, while existing home sales rose only 0.2% in April. Mortgage rates had fallen below 6% just before the war with iran. Even Home Depot $HD ( ▲ 1.03% ) felt the pinch, with first-quarter profit falling to $3.3 billion from $3.45 billion a year ago. Its shares are down 26% since a peak last September. “When we talk to our customers, they do tell us that they have concerns over uncertainty and housing affordability,” CFO Richard McPhail told the Wall Street Journal. As if to illustrate the uncertainty, the number of homes facing foreclosure jumped 26% in march from a year earlier. Meanwhile, Treasury ills, the debt the U.S. government issues to finance the programs it provides, is getting more expensive to service, as investors see it as growing riskier. With the government now promising interest of 4.6% on 10-year bonds and 5.12% on 30-year bonds Thursday, the highest they’ve been in nearly 18 months. Democrats are leaning heavily on a quote Trump gave to news media last week saying “I don’t think about Americans’ financial situation” when negotiating with Iran — although the second half of that quote is a bit more balanced because the president said he’s focused on the elimination of the country’s nuclear capabilities.

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Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story. Email him here.