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A flood of new shares from companies looking to fund their artificial intelligence ambitions is raising questions on Wall Street about whether there will be enough buyers to soak them all up and what this pile of fresh equity will mean for stock prices more broadly.<\/p>\n
Initial public offerings from SpaceX, Anthropic and OpenAI in the coming months could add close to $4 trillion in market capitalization to US exchanges, according to data compiled by Bloomberg. Already, the SpaceX deal has drawn more orders than shares available in the filing. Meanwhile, Alphabet Inc. is planing to\u00a0raise $85 billion\u00a0next quarter by selling stock, mostly into the open market, a move that could be followed by other technology giants in need of cash for AI data centers.\u00a0<\/p>\n
\u201cThis is something that we haven\u2019t seen in such a scale and in such a short time,\u201d said Ano Kuhanathan, head of corporate research at Allianz Trade. \u201cIt\u2019s a huge supply event.\u201d<\/p>\n
The sellers seemingly have a lot going for them at the moment. AI investments are\u00a0booming, spurring strong revenue growth. Chipmakers are soaring, with the Philadelphia Stock Exchange Semiconductor Index on pace for its best year since 2003 with an 74% gain. Even old-school tech companies like Cisco Systems Inc., Nokia Oyj and Dell Technologies Inc. have caught a bid from AI enthusiasm.<\/p>\n
Of course the timing could turn out to be less than ideal, as investors are starting to question if the rally has gone too far. The Nasdaq 100 Index sank 4.8% on Friday, its worst session in over a year. A report that Meta Platforms Inc. is considering raising tens of billions in a stock offering sent its shares down 5.5%.\u00a0<\/p>\n
Still, Wall Street pros are confident the demand ultimately will be there when those new shares are available.<\/p>\n
\u201cThere is plenty of capital available to absorb not just this year\u2019s IPOs, but also primary stock offerings by already public companies in need of cash to build out AI,\u201d Nicholas Colas, co-founder of DataTrek Research, wrote in a note to clients last week.<\/p>\n
Part of what\u2019s expected to make it easier for the market to digest the mega IPOs is the issuers are only selling a small portion of their outstanding stock, keeping their floats, or the number of shares available to trade, contained. For example, SpaceX, whose formal name is Space Exploration Technologies Corp., expects to offer just\u00a04% of its outstanding stock. But that should change in the months ahead as restrictions on selling by long-time investors and company insiders expire and they begin to monetize their positions by selling portions of their stakes.<\/p>\n
Read More: SpaceX Staff Team Up for Lower Fees, Tax-Saving Tools Before IPO<\/p>\n
Historically, large IPOs with average initial floats of less than 10% of outstanding shares see that figure balloon to around 46% a year after their debuts, according to data compiled by Goldman Sachs. That would mean roughly $1 trillion of new equity supply by 2027, in addition to any direct corporate issuance, Goldman strategists led by Ben Snider wrote in a research note dated May 29.<\/p>\n
\u201cOnce those companies are fully in the market, it\u2019s going to create quite a shock,\u201d said Allianz Trade\u2019s Kuhanathan.<\/p>\n
Adding to the potential chaos are\u00a0rule changes\u00a0by index providers Nasdaq Inc. and FTSE Russell that will speed the entry of SpaceX, Anthropic and OpenAI into their flagship indexes. Considering the passive followings of these benchmarks, the companies\u2019 inclusion could create extreme demand for their shares as exchange-traded funds tracking the gauges are forced to match the new index weightings.\u00a0<\/p>\n
The flipside, of course, is index funds will also have to trim current positions to make room for new entrants when they eventually join the indexes, according to Research Affiliates founder Rob Arnott. If they continue to float shares over time, smaller firms could see their index weights erode gradually, he said.\u00a0<\/p>\n
\u201cThere\u2019s going to be this drip, drip pressure every time they float some new stock,\u201d\u00a0Arnott said\u00a0in an interview in London last week, predicting that frequent index rebalancing will also drive \u201ca wedge in valuation between the newbies and the old companies.\u201d<\/p>\n
On Thursday, S&P Dow Jones Indices\u00a0rejected proposals\u00a0that would have shortened the 12-month delay for newly listed companies to appear in its indexes and waive existing profitability requirements.<\/p>\n
Read More: S&P\u2019s SpaceX Snub Shows Elon Musk the Power of Index Gatekeepers<\/p>\n
\u201cThese behemoth IPOs will rapidly take up both the market share of benchmarks and the mindshare of retail investors,\u201d said Max Gokhman, senior vice president at Franklin Templeton Investment Solutions. \u201cBut once the lockups end and the floodgates open for employees and venture investors to realize significant wealth, the marginal selling pressure can upset an already fragile setup.\u201d<\/p>\n
The erosion Arnott warns about could go beyond old economy companies and small stocks. The AI boom has been different than past euphoric periods because investors haven\u2019t been able to buy the firms driving so much of the action: OpenAI and Anthropic. Instead, they\u2019ve been forced to pour money into companies that are close to them as customers, partners or both.\u00a0<\/p>\n
A basket of stocks exposed to OpenAI tracked by Bloomberg is up 33% this year, dwarfing the S&P 500\u2019s 7.9% rise. Marvell Technology Inc., which is building custom chips that are being used by OpenAI and Anthropic, has soared 210%.<\/p>\n
The catch is, once the startups most responsible for AI have publicly traded shares, investors are likely to sell many of these positions and use their profits to buy into Anthropic, OpenAI or SpaceX, according to Nigel Green, chief investment officer at DeVere Group.\u00a0<\/p>\n
\u201cInvestors have spent years buying proxies because they couldn\u2019t buy the assets directly,\u201d said Green. \u201cIf investors can eventually own OpenAI itself, some of the scarcity value attached to that relationship inevitably changes.\u201d<\/p>\n
The selling could hit chipmakers Nvidia Corp. and Broadcom Inc., which have been key drivers of the S&P 500\u2019s gains over the past three years.\u00a0<\/p>\n
And then there\u2019s Tesla Inc. The electric-vehicle maker\u2019s stock has been the only way for retail investors to bet on billionaire Elon Musk since it went public in 2010. That changes when SpaceX starts trading, which is expected on Friday. Indeed, SpaceX may become the new preferred vehicle for Musk wagers since he has more control over this company and it houses xAI, which Wall Street\u00a0expects\u00a0to drive most of its growth.<\/p>\n
Read More: Tesla Shares Need New \u2018Razzle-Dazzle\u2019 as EVs Slow, AI Hype Cools<\/p>\n
Of course, there\u2019s always a risk that investors will balk at paying steep prices to own new shares of money losing companies.\u00a0<\/p>\n
SpaceX, for example, had an\u00a0operating loss\u00a0of $6.4 billion last year and would be priced at more than 90 times last year\u2019s sales at the $135 share price it\u2019s\u00a0targeting. Numbers like that certainly represent a risk. But with the offering oversubscribed, they\u2019re clearly not something investors are too worried about \u2014 \u00a0at least for now.<\/p>\n
\u201cIt isn\u2019t all going to be sunshine and rainbows,\u201d said Anthony Saglimbene, chief market strategist at Ameriprise. \u201cThey\u2019re going public in an environment where expectations are so high that there\u2019s little room for error. And they\u2019re going public at such large sizes that investors will be less forgiving over the next 12 months.\u201d<\/p>\n<\/div>\n
#AIs #mega #stock #deals #raise #specter #shares #buyers<\/p>\n","protected":false},"excerpt":{"rendered":"
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