"I think private market is overvalued." This direct assertion from Imran Khan, founder and chief investment officer of Proem Asset Management, set the tone for a recent candid discussion with Gunjan Banerji, co-host of WSJ's Take On The Week and Lead Writer for Live Markets. Their conversation delved into the fervent AI trade, the driving forces of market speculation, and the herd mentality influencing investment in highly capitalized private entities like OpenAI and SpaceX. Khan's analysis provided a sobering counterpoint to the prevailing exuberance, highlighting significant valuation disparities and underlying risks.
Khan raised pointed questions regarding the sustainability of current valuations, particularly for companies perceived to hold dominant market positions. Taking SpaceX as a prime example, he challenged the premise of investing at peak valuation for a company already enjoying substantial market share. He asked, "Are you investing in a company that has peak market share with a peak multiple?" This query underscores a critical insight: when a company's market penetration is already extensive and its valuation reflects maximum potential, the runway for outsized future returns for new investors becomes inherently limited.
Such monopolies are rarely sustainable in B2B industries. Governments and large enterprises inherently seek to diversify their critical suppliers. Khan articulated this concern, stating, "I just can't imagine a world that a decade from now, that every country in the world have this kind of concentration risk with one company." This perspective suggests that even if a company like SpaceX currently dominates, strategic imperatives for national security, supply chain resilience, and competitive market dynamics will inevitably foster new entrants or bolster existing rivals, eroding singular market control.
The discussion further illuminated a stark contrast between private and public market valuations, particularly when comparing AI leaders. Khan directly questioned the rationale behind current private market multiples. He queried, "Do you really pay 25 times reported revenue multiple for OpenAI or do you pay 25 to 30 times earnings multiple for Nvidia?" This comparison is telling. While OpenAI, a private entity, commands a valuation based on a high revenue multiple, public market giants like Nvidia, which is demonstrably profitable and foundational to the AI boom, trade at a more traditional earnings multiple. This chasm suggests that private valuations are often buoyed by speculative growth projections rather than established profitability, presenting a less attractive risk-reward profile.
Ultimately, Khan views the public markets as offering superior relative value in the current climate. "Public market in my opinion feels like a better place to invest," he concluded. His analysis serves as a crucial reminder for founders, venture capitalists, and AI professionals to temper enthusiasm with rigorous financial discipline. The current market narrative, often fueled by an insatiable appetite for the "next big thing," risks overlooking fundamental valuation principles and long-term competitive realities.
