Investor enthusiasm surrounding the next wave of artificial intelligence listings is reaching a fever pitch, but Apollo Global Management’s chief economist, Torsten Sløk, is cautioning that history suggests many newly public companies struggle to justify their lofty valuations after listing.

As AI leaders OpenAI and Anthropic prepare for highly anticipated stock market debuts, Sløk believes that investors should temper expectations, pointing to the disappointing track record of recent initial public offerings and warning that the market conditions that undermined many IPOs over the past several years remain largely intact.

Investor appetite for AI companies has surged as artificial intelligence continues to dominate corporate investment, with companies tied to the sector commanding premium valuations on expectations of rapid revenue growth and transformative technological breakthroughs.

However, Sløk believes excitement alone is not enough to guarantee strong long-term shareholder returns. In a note to clients, he pointed to recent IPO performance as evidence that newly listed companies have consistently underperformed broader equity markets since 2019.

According to Apollo’s analysis, IPO returns have lagged benchmark indices over the past several years, with many companies that debuted during the pandemic-era boom suffering steep declines once the initial enthusiasm faded.

“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,” Sløk wrote.

His argument centers on three structural forces that have reshaped the IPO market: elevated company valuations, persistently higher interest rates and increasingly demanding investor expectations.

During the pandemic, near-zero interest rates, abundant liquidity and unprecedented retail investor participation fueled a rush of technology listings as companies sought to capitalize on exceptionally favorable market conditions.

Many firms were able to secure valuations that, in hindsight, proved difficult to sustain once monetary policy tightened and investors shifted their focus toward profitability and cash generation.

The environment today is different in several respects, but Sløk argues that the underlying challenges for IPO investors remain. Interest rates remain significantly higher than the ultra-low levels that prevailed throughout much of the 2010s, increasing the discount rate applied to future earnings and making richly valued growth stocks more difficult to justify.

At the same time, equity market performance has become increasingly concentrated in a small group of mega-cap technology companies, particularly those leading the AI revolution. Companies such as Nvidia, Microsoft, Alphabet, Amazon and Meta have accounted for a disproportionate share of broader market gains, raising the performance benchmark that newly listed firms must surpass to reward investors.

That concentration leaves little room for disappointment among companies entering the public market at premium valuations.

“Each of these forces could persist,” Sløk said.

“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.”

OpenAI and Anthropic are widely expected to become two of the most closely watched IPOs in market history. Both companies sit at the center of the generative AI boom and have attracted tens of billions of dollars in investment from major technology firms and institutional investors.

The prospect of gaining direct exposure to AI leaders has generated significant excitement among investors who have largely participated in the AI rally indirectly through companies supplying chips, cloud infrastructure and software. Yet those expectations have also fueled concerns that prospective valuations may already reflect years of optimistic growth assumptions.

Sløk’s caution echoes similar views expressed by other market veterans.

Jay Ritter, one of the foremost academic experts on initial public offerings, previously warned that recent IPO history suggested newly listed companies were likely to underperform after going public. He specifically cautioned that SpaceX, one of the most anticipated technology listings in recent years, could struggle once the initial enthusiasm subsided.

That assessment has so far proved prescient. Roughly six weeks after its historic IPO, SpaceX shares have fallen about 18% from their $135 offering price, illustrating how even high-profile companies with strong brand recognition and significant investor demand can experience sharp post-listing declines.

The experience highlights a recurring pattern in modern IPO markets.

Companies often debut after years of private fundraising at progressively higher valuations, leaving relatively limited upside for public investors who enter at the offering price. Once public, those businesses face greater scrutiny over earnings, profitability, execution and growth, frequently resulting in increased share-price volatility.

For AI companies, those challenges may be amplified by exceptionally high expectations.

Investors are pricing in years of rapid expansion as enterprises accelerate spending on artificial intelligence, cloud computing and advanced software. However, competition within the sector is intensifying, development costs continue to rise, and many AI companies remain heavily dependent on substantial capital expenditure to train increasingly sophisticated models.

As a result, future public investors may face a narrower margin for error than early private backers.

That does not necessarily imply that upcoming AI IPOs will disappoint.

OpenAI and Anthropic are widely regarded as industry leaders with significant technological advantages and access to substantial financial resources. Their long-term prospects may differ materially from many companies that listed during the speculative boom of 2020 and 2021.

Nevertheless, Sløk’s analysis serves as a reminder that purchasing shares in highly anticipated IPOs has historically produced mixed results, particularly when valuations already incorporate optimistic assumptions about future growth.