JPMorgan Asset Management global market strategist Stephanie Aliaga says equities will likely witness wild price swings as three AI giants, including SpaceX, are expected to make their public market debuts this year.
The News
In a new CNBC interview, Aliaga says she expects turbulence in the market as investors begin to scrounge up capital to participate in the initial public offerings of SpaceX, Anthropic and OpenAI.
“I think we should be buckled up for some volatility. Obviously, there’s going to be some high-profile liquidity entering the market.”
In late May, Goldman Sachs managing director John Flood said that institutional investors, such as mutual funds and passive index funds, were already unloading some of their holdings to prepare for the public listings of the three AI titans.
But Aliaga says she’s not too concerned about the blockbuster IPOs because money is coming into the stock market from multiple sources.
“You take a step back and remember that since 1990, the number of public-market companies has essentially halved to 4,000. Meanwhile, there’s been strong structural demand flowing into markets every day from people’s 401k contributions, from massive passive inflows that are valuation agnostic for the most part.
And all of that still puts pretty good structural support for markets. And we think that we can ultimately digest this new issuance this year. Of course, there’s going to be some volatility along the way, but so long as there is a reason to invest, we think those inflows will be positive.”
What It Means for Investors
Data from the independent financial consulting firm Yardeni Research supports Aliaga’s view that there’s sufficient liquidity to absorb the incoming supply from SpaceX, Anthropic and OpenAI.
Yardeni Research argues that the supply from the three firms, or what it calls the “AI-3,” will be “puny” and history has shown the market can gobble up hundreds of billions of dollars in new equity issuance from IPOs.
“SpaceX is only floating roughly 4.3% of its shares to the public. The other two AI-3 are also likely to provide relatively puny free float… In any event, the AI-3 should have no trouble raising $200 billion in the IPO market, which has financed $232 billion in new equity issuance over the past 12 months through April (chart). During 2021, more than $450 billion was raised with equity IPOs.”
Even though it appears that there’s enough liquidity to absorb the equity issuance, Fundstrat’s Tom Lee has warned that price action could feel like a bear market has taken hold as equities struggle to find bullish momentum amid the potential capital rotation.
Although there’s a lot of excitement building around the mega IPOs, it is important to consider that the AI-3 are operating at a loss. SpaceX reported a nearly $5 billion loss last year, while OpenAI and Anthropic are projected to lose $14 billion each this year.
Markets are irrational and prices often decouple from fundamentals, and that disconnect could ultimately trigger wild price swings in the coming months.
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