Listed Shareholder Companies - Legacy Bait?

It is well known that companies, like most organisms, have a life cycle: start-up, growth, maturity, and decay. It is very difficult, if not impossible, for company leadership to continually reform themselves to adapt to a changing environment. They will seek to cling to the status and privilege of their positions long after their use-by date has expired. There is profound embedded inertia in a company’s footprint.

Pertinently, Qantas set up a separate company, Jetstar, to still fly planes but started the company from scratch—such was the risk of contagion it foresaw from its existing high-cost base.

1. The Velocity of Change: The more rapidly the environment changes, the higher the risk of holding a stake in the current environment. AI has crossed the rubicon (which will be the subject of a separate brief) and is evolving at an exponential rate. The recent sudden implosion of software company market valuations worldwide—a sector investors would presume to be the most forward-looking—is likely a foretaste of share sector contagions in the future.
2. Leakage to Private Equity: There is an ever-increasing leakage from the share market to private equity. Rather than the old days where only listed companies had the capital to grow, private equity can now delay listing start-ups until they have already gone through their exponential growth phase. OpenAI potentially joining the share market with a capitalization of a trillion dollars is wealth denied to mum-and-dad investors. Rather than being a cause for celebration, it is an illustration of a dying ecosystem.
3. The Valuation Premium: A dying ecosystem means it will be increasingly hard to raise shareholder capital. Most listed companies trade at around 2.5 times their net asset value. A listed company is worth at least double that of a private equivalent because of shareholder liquidity and forced investment through superannuation. That premium will dissipate over time.
4. The Squeeze: The raison d'être of a company as an aggregator of scarce capital and resources to provide scale is under threat. They are being sandwiched between massive AI companies on one side, and customers using AI to bypass the need for the company's services on the other.
5. Customer Solvency: The livelihoods of the companies' own customers are under threat by AI. No company can make a profit selling to a customer who cannot afford to pay, regardless of how good the deal is.
6. AI as a Predator: Marauding AI will regard public companies as juicy targets—not only to adapt their business models and destroy them by undercutting, but by stealing their IP (including customer databases) and vaporizing the company’s goodwill.