With SpaceX, Anthropic and OpenAI slated to IPO on the Nasdaq this year, Australian investors have two decisions to make.
First, they must decide if they want to stick with Nasdaq-focussed ETFs. These ETFs – including our own ETFS Magnificent 7+ ETF – are about to change in a big way.
Second, they must decide if there really is some kind of AI bubble, given these coming IPOs will turn the Nasdaq into a de facto basket trade on AI.
Decision #1 – is the Nasdaq still investible
It's too early to say how large these companies will be at IPO. But recent secondary sales and published forecasts put SpaceX at $2 trillion, OpenAI at $850 billion, and Anthropic at $380 billion.
For Australian ETF investors this is of more than academic import.
Nasdaq-derived ETFs – most famously those tracking the Nasdaq 100 – have stolen a march on the S&P 500 over the past 10 years. With each passing year, they take greater market share of global ETF inflows.
Why? They have performed a lot better and adopted a much more transparently rules-based approach.
Often unknown to non-specialists, the S&P 500 is not a purely passive index. It doesn't just take the top 500 largest US companies. Instead, it only includes large companies that have been profitable for a year. Even then, the S&P's index committee wields discretion.
This has meant unprofitable companies – tech companies these days can remain unprofitable for many years – get into Nasdaq ETFs first. And it means that if their outperformance occurs in the early days of listing, S&P 500 investors can miss it.
We saw this play out with Tesla.
Tesla rallied almost 850% in the year before its inclusion in the S&P 500. But since inclusion, Tesla’s share price has risen much more modestly. Most of Tesla's share price gains have gone to Nasdaq investors, but not S&P 500 investors.
Which leads us to the decision Australian ETF investors need to make.
This year's IPOs raise the possibility that what happened with Tesla happens again – but on a larger scale.
SpaceX, Anthropic and OpenAI are all unprofitable. Investor documents presented pre-IPO to the Wall St Journal suggest that they anticipate remaining so until 2030. This means that while they will be included in Nasdaq ETFs, they won’t be in the S&P 500 for some time, despite their incredible size.
So ASX ETF investors need to decide if they want to own these companies. If so, they need to use something other than S&P 500 ETFs.
Decision #2 – is AI a bubble?
There has been a steady drip of commentary the past two years claiming AI is a bubble.
With the major AI apps – ChatGPT, Claude and xAI – all set to IPO, its crunch time for a decision.
Where those claiming there is a bubble have a point is that the cash burn – capex – required to keep building frontier model is enormous. Pre-IPO documents from Open AI suggest its cash burn is accelerating and will come in at $200 billion-plus before 2030. OpenAI must become one of the largest global companies by revenue to operate on attractive margins.
Another valid concern is increasing competition from Google’s Gemini and free open-source models. Both Anthropic and OpenAI’s IPO announcements came shortly after the release of Gemini 3.
Nevertheless, the claim that AI is a bubble is probably incorrect. The US tech sector’s forward PE ratio is falling (it’s now below its 5-year median) at a time that profit growth is climbing. Rising profits accompanied by crimping valuations is rarely, if ever, a signal of a bubble.
The high costs and lack of profits critics point to also misses the point. Google, Amazon, Facebook: each of these companies remained lossmaking for years. They burned cash to run competition to the ground and create global monopolies. Only after the dust settled did they figure out how to make profit. The same could happen here again.
About ETF Shares
ETF Shares is a low-cost index ETF issuer, based at the Macquarie University Incubator. We specialise in US-focused ETFs, such as the ETFS Magnificent 7+ ETF (ASX: HUGE) and ETFS US Quality ETF (ASX: BEST)
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