What is an IPO, and how do AI companies get valued?

An IPO, or initial public offering, is the moment a private company sells its shares to the public for the first time and lists them on a stock exchange. It is how a company goes public. Investment banks, called underwriters, usually organize the sale and arrange the listing, and buyers are told the details in a long document called a prospectus.

A company's value after an IPO is simple to state: the share price multiplied by the number of shares outstanding, which is called its market capitalization. That is why valuations can move so fast. Before an IPO, a company's value is set in private deals, such as the February 2026 deal in which, according to an encyclopedia article, SpaceX acquired xAI at a valuation of $125 billion for xAI and $1 trillion for SpaceX.

The first day can be dramatic. The 1998 IPO of theglobe.com was priced at $9 per share, jumped 1,000% on the opening day to a high of $97, then fell back to close at $63. More recently, SpaceX's IPO on June 12, 2026, was described as the largest ever, at a valuation of US$1.77 trillion, with a market capitalization of about $2.1 trillion on the first trading day. By late July 2026 its shares had fallen about 50% from their post-IPO peak.

Whether AI companies are worth what investors pay is argued over. Some commentators use the phrase AI bubble; others say AI is real but that some of the money will be wasted. This lesson describes how valuation works; it does not tell anyone what to buy.