What caught my eye this week.
Passive investors who’ve fretted about the trend for companies to grow into giants outside of the public markets might soon have a new beef with these mega-caps.
The likes of SpaceX, Stripe, OpenAI, and many more have created hundreds of billions of dollars – perhaps in SpaceX’s case over $1 trillion – of shareholder value, without deigning to raise any money the old-fashioned way via an IPO and the public markets.
Employees have become millionaires and some VCs have made fortunes. But the average investor has missed out on such wealth creation over the past decade or so.
Online platforms and software firms found that in the cloud computing era they had little need for money upfront to support their growth anyway. Very different to yesteryear, when growing firms had to build factories or dig mines.
But even the companies that did need to spend big – such as SpaceX and OpenAI – have been able to tap into vast pools of private money. This way they could keep expanding without the burden of public scrutiny or a volatile share price.
Good for them, though I’ve mused before about the threat this poses to public equity markets as the democratic wealth creation engines we’ve enjoyed for 100 years.
Whale sharks
Some of the biggest and best-known AI-related start-ups of the day are finally expected to list in the US this year, however, thanks to the voracious capital requirements of the AI infrastructure rollout.
But if you’re a passive investor in the S&P 500, you might end up wishing they hadn’t.
As venture capitalist Tomasz Tunguz highlights, these firms have gotten so big before going public that it’s not clear how the market will find the money to take a stake:
Tunguz notes:
At standard float percentages, these three companies would need to raise $432-576b from public markets in a single quarter.
From 2016 to 2025, the entire US IPO market raised $469b.
It’s like throwing a boulder into a pond. Standard floats are impossible, so these companies will debut with tiny ones, likely 3-8%.
Even with smaller free floats, Tunguz speculates that the churn required for index funds to reshuffle money into the new market giants will be considerable. He also notes the rules will need to be rewritten to allow the listings to take place.
It’s a theme taken up at the Financial Times, where Craig Coben highlights how Nasdaq is proposing to amend its listing rules to welcome these behemoths.
Broken homes
The trouble is, as Joseph Stalin observed, ‘Quantity has a quality all of its own’.
These companies are so ludicrously enormous that certain awkward realities of the listing process – such as the front-running of index funds mandate-bound to buy the stocks – become almost existential threats at this scale.
You’ll have to read Coben’s full piece for the details, but here’s his sobering conclusion:
In short, [Nasdaq’s] proposed changes allow founders and management to float less stock, maintain tighter control, and still feed off the valuation pop from rapid benchmark inclusion.
Meanwhile, [index fund] holders face the opposite side of the trade – forced to buy into a low free float after the market has already front-run them.
Nasdaq may frame the consultation as modernisation, but in practice, it looks like the blueprint for a new kind of market capture.
I don’t feel I’m qualified to opine on what exactly will happen when a $1 trillion company tries to become the sixth-largest company on the public markets in a morning.
But I know the process wasn’t meant to work this way.
Supermassive
Incidentally, some people also worry that all the potential value has already been created by these companies, because they’ve gone public so late. Hence public market investors buying into them now are doing the equivalent of securing shares in Lastminute.com on the eve of the Dotcom crash.
That’s obviously tautologically true. If SpaceX had floated 20 years ago at $1bn, say, then US small-cap index returns for the past couple of decades would be in far better health.
But it’s also true that the biggest companies in the US will probably be bigger than $10 trillion by the 2040s. There may yet be scope for some further multi-bagging.
Especially if, you know, AI ends up taking over all the work of every other business on the market…
Have a great weekend.
From Monevator
The ISA allowance: how it works and how to use it – Monevator
Active investors are engaged investors – Monevator
From the archive-ator: Debating FIRE – Monevator
News
When is the Spring Statement and what might be in it? – BBC
Vanguard plots size factor ETF rollout in Europe – ETF Stream
Mansion tax begins to ‘bunch’ UK house prices below key threshold – Hamptons
The new scam that turns victims into insurance cheats – Guardian
Jack Dorsey’s Block cuts thousands of jobs as it embraces AI – BBC
Burnley named Britain’s property hotspot – This Is Money
Elevated asset prices add to economic risks, says Jamie Dimon – CNBC
How Korea’s president invigorated its stock market – Bloomberg via MSN
The Mag 7 is trading at a P/E discount to consumer staples – Chart Kid Matt
Products and services
Disclosure: Links to platforms may be affiliate links, where we may earn a commission. This article is not personal financial advice. When investing, your capital is at risk and you may get back less than invested. With commission-free brokers other fees may apply. See terms and fees. Past performance doesn’t guarantee future results.
Melton B.S. launches a 0% deposit mortgage for first-time buyers – T.I.M.
Cancel Sky and Virgin TV and save hundreds – Be Clever With Your Cash
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
Premium Bond prize rate cut to 3.3% – Be Clever With Your Cash
Explainer: why the student loans row is escalating and what it means – Guardian
UK investors unable to put crypto products into ISAs from April [Paywall] – FT
Get up to £3,000 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link – Interactive Investor
Lloyds Bank is offering up to £2,300 in switch incentives – This Is Money
Homes a short walk from the sea, in pictures – Guardian
Making Tax Digital mini-special
Making Tax Digital for landlords and sole traders [Podcast] – Property Podcast
What Making Tax Digital software should you use? – Which
Comment and opinion
Wine every day will soon taste like water – Life After the Daily Grind
Personal finance is broken – The Evidence-based Investor
Stepping outside the cave – Meaningful Money
Optimism as an investment strategy – A Wealth of Common Sense
Is self-insurance ever a good idea? – Which
It can be easier to fall for fraud on mobile than desktop – Oblivious Investor
Nobody trusts anybody anymore – Your Brain on Money
The best strategies for consistent retirement spending – Morningstar
Should gilts be free of inheritance tax? – This Is Money
FIRE is so back, thanks to AI disruption – Financial Samurai
Why static portfolios fail when risk regimes change – CFA Institute
Naughty corner: Active antics
At least one analyst at Citadel isn’t convinced by the AI panic – Citadel
Bill Ackman’s Pershing Square annual letter [PDF] – Pershing Square Holdings
Revaluation in Japan – Verdad
The tax nerd who bet his savings against DOGE – WSJ [h/t Abnormal Returns]
Three perspectives on US balance sheets – Apollo
US markets rarely do badly outside of recessionary years – Carson Group
Macroeconomics and stock market valuation [Nerdy, PDF] – Minneapolis Fed
Kindle book bargains
Deep Work by Cal Newport – £0.99 on Kindle
Co-Intelligence: Living and Working with AI by Ethan Mollick – £0.99 on Kindle
The Wealth Ladder by Nick Maggiulli – £0.99 on Kindle
The Retirement Handbook by Ted Heybridge – £0.99 on Kindle
Environmental factors
Waitrose suspends sale of mackerel because of overfishing – Guardian
Earth’s power to heat 10,000 homes in first for UK – BBC
The ghosts of conservation past – Biographic
Extreme heat lab: enduring the climate of the future – Guardian
World’s largest coral colony discovered off the coast of Australia – CNN
Robot overlord roundup
Howard Marks just got AI religion – Oaktree Capital
Anthropic has dropped its core safety pledge… – CNN
…though it’s still in the wars with the Pentagon – Guardian
The AI-augmented scientist – The Climate Brink
Tech leaders envisioned in the future [AI video but fun] – via X
British driverless car firm Wayve raises $1.2bn – This Is Money
AI can’t yet do stock market analysis – Morningstar
Only 1% of S&P 500 firms report the impact of AI on their earnings – Sherwood
Why is South Korea madly in love with AI? – Politico
Not at the dinner table
Four years in, the US has abandoned Ukraine – Kiel Institute and Paul Krugman
Is there an endgame in Ukraine? [Podcast] – Foreign Affairs
Greens’ win means the future of UK politics is more uncertain than ever – BBC
A good primer on the supply/demand impacts of immigration – Agglomerations
A UK woman with a valid visa was detained by ICE for six weeks – Guardian
Attack of the zombie tariffs – Paul Krugman
Crime is why the US feels worse than other countries – Noahpinion
If AI makes human labour obsolete, who decides who eats? – Guardian
Off our beat
Why your brain has to work harder in an open-plan office – Phys.org
Running like “a middle-aged rave”, says Josh Widdicombe – Runner’s World
A war foretold: how the CIA and MI6 got hold of Putin’s plans – Guardian
What happens when you no longer feel needed? – Contessa Capital
It’s the end of the world as we know it (but I feel fine) – Tim Harford
Nobody’s ever ready – The Imperfectionist
And finally…
“Just as moats were dug around medieval castles to keep enemies at bay, economic moats protect the high returns on capital enjoyed by the world’s best companies.”
– Heather Brilliant, Why Moats Matter
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![Checking in on private companies and crowdfunded investments [Members]](https://monevator.com/wp-content/uploads/2025/09/flight-to-crap-9-2025-1024x960.jpg "Checking in on private companies and crowdfunded investments [Members]")
“Should gilts be free of inheritance tax?” was an interesting article. There is a historical exemplar in that a class of US treasuries (so-called ‘flower bonds’) issued between ~1920 and the mid 1960s could be used to pay estate taxes at par (with some caveats – e.g., prior to 1976(?) they needed to have been held a minimum period before death). They had lower yields than the equivalent bonds without the exemption and, IIRC, were also traded less frequently (so lower liquidity).
An analogous yield-lowering strategy was successfully adopted by the UK treasury in the 1980s when gilts were issued with much lower coupons (IIRC, 3%) than the prevailing yields (~12% or more) in order to place most of the return in the capital gains (and hence tax-free) category.