(SeaPRwire) –
By: Alex Mercer
The AI gold rush is creating a peculiar problem on Wall Street. Companies are lining up to sell shares, hoping to fund their artificial intelligence dreams. This influx of new stock raises a critical question: will there be enough buyers to absorb it all? The sheer volume could significantly impact stock prices across the board.
SpaceX, Anthropic, and OpenAI are poised to go public soon. Their combined market capitalization could reach nearly $4 trillion on US exchanges. Bloomberg data shows SpaceX’s offering already has more orders than shares available. Alphabet Inc. plans to raise $85 billion next quarter by selling stock. This move is likely a precursor to other tech giants needing cash for AI data centers. Ano Kuhanathan of Allianz Trade notes this scale and speed are unprecedented. It’s a “huge supply event.”
The sellers have favorable conditions. AI investments are booming, driving strong revenue growth. Chipmakers are seeing massive gains, with the Philadelphia Stock Exchange Semiconductor Index up 74% this year. Even older tech firms like Cisco and Nokia are benefiting from AI enthusiasm. However, investors are starting to question if the rally has gone too far. The Nasdaq 100 Index recently dropped 4.8%, its worst day in over a year. News of Meta Platforms considering a stock offering sent its shares down 5.5%.
Despite these jitters, Wall Street pros remain confident in demand. Nicholas Colas of DataTrek Research believes there’s ample capital. It can absorb this year’s IPOs and primary offerings from public companies. These companies need cash for AI infrastructure. A key factor is that issuers are selling only a small portion of their stock initially. SpaceX, for instance, plans to offer just 4% of its shares. This keeps the tradable float contained. However, this will change as restrictions on early investors and insiders expire. They will likely monetize their stakes. Goldman Sachs data suggests initial floats under 10% can balloon to 46% within a year. This could add roughly $1 trillion in new equity supply by 2027. Kuhanathan warns this will create “quite a shock” once these companies are fully in the market.
Rule changes by Nasdaq and FTSE Russell will accelerate the entry of SpaceX, Anthropic, and OpenAI into major indexes. This could create significant demand. Exchange-traded funds tracking these benchmarks will be forced to buy their shares. Conversely, index funds will need to trim existing positions. Rob Arnott of Research Affiliates notes this will create “drip, drip pressure” as new stock is floated. He predicts this will drive a “wedge in valuation between the newbies and the old companies.” S&P Dow Jones Indices, however, rejected proposals to shorten the delay for new companies entering its indexes. Max Gokhman of Franklin Templeton Investment Solutions sees these IPOs dominating market share and investor attention. But he cautions that once lock-up periods end, selling pressure from employees and venture investors could destabilize the market.
The erosion Arnott predicts might extend beyond older companies. The AI boom has been unique because investors couldn’t directly buy the key players like OpenAI and Anthropic. They instead invested in related companies. A basket of OpenAI-exposed stocks is up 33% this year. Marvell Technology, supplying chips to OpenAI and Anthropic, has soared 210%. Nigel Green of DeVere Group suggests investors will sell these proxies to buy directly into the AI startups. This will change the “scarcity value” of these relationships. Chipmakers like Nvidia and Broadcom, key drivers of the S&P 500, could be affected. Tesla, the only way for retail investors to bet on Elon Musk, faces competition from SpaceX. SpaceX, with more control and housing xAI, is expected to be Musk’s preferred vehicle.
There’s always a risk investors will balk at high prices for unprofitable companies. SpaceX reported a $6.4 billion operating loss last year. Its targeted share price implies a valuation over 90 times last year’s sales. These numbers are risky. But with the offering oversubscribed, investors seem unconcerned for now. Anthony Saglimbene of Ameriprise warns there’s “little room for error.” Companies are going public at large sizes with high expectations. Investors will be “less forgiving” in the coming year.
Author bio: Alex Mercer, a Tech Director at a major Silicon Valley firm, provides sharp, no-nonsense analysis of the technology landscape.