SpaceX's Unprecedented IPO: Will it Succeed Amidst Rate Hikes, Overheating, and ETF Rebalancing?

The global stock market is abuzz with anticipation for potentially record-shattering Initial Public Offerings (IPOs) from tech giants SpaceX, OpenAI, and Anthropic by the end of the year. If successful, these offerings could secure the top three spots in global listing history, injecting new growth momentum into the market. However, this optimism is tempered by growing concerns over rising interest rates, inflated company valuations, and the potential impact of portfolio rebalancing by existing investors.

Collectively, these three companies aim to raise an unprecedented $195 billion. SpaceX is targeting $75 billion with a $1.75 trillion valuation, OpenAI aims for $60 billion with a $1 trillion valuation, and Anthropic plans for $60 billion with a $900 billion valuation. SpaceX's projected IPO size alone is 3.4 times larger than Alibaba's 2014 listing, which was previously the largest in U.S. history. With numerous other IPOs slated for this year, the total amount raised could reach $300 billion, fueling expectations of improved investor sentiment and new capital inflows.

Despite the excitement, significant headwinds exist. The valuations for these private companies are exceptionally high, with Price-to-Sales Ratios (PSR) reaching 87.5 for SpaceX, 40 for OpenAI, and 20 for Anthropic, far exceeding those of established Big Tech firms. SpaceX, operating in a unique aerospace sector with few comparable companies, faces particular scrutiny regarding its valuation. Its early move to list could exacerbate valuation concerns for the entire market.

“

SpaceX is the only company in the aerospace industry, so there is more disagreement about its appropriate valuation. The fact that SpaceX, which has the biggest overvaluation controversy among the Big 3, is going public first could act as a valuation burden on the stock market.

Furthermore, the concentration of IPOs in AI-related companies, accounting for about 90% of U.S. IPOs this year, presents a significant risk. A failure in one of these major offerings could trigger a widespread downturn in investor sentiment towards AI stocks. The substantial investments made by tech giants like Amazon, Google, Microsoft, and Nvidia in these companies add another layer of interconnected risk.

Finally, the sheer size of these IPOs, with an estimated combined market capitalization of $4 trillion, will necessitate significant portfolio rebalancing. Major benchmark-tracking ETFs, particularly those following the S&P 500, will need to adjust holdings, potentially leading to the sale of approximately $156 billion in existing stocks. This, coupled with a historically low stock risk premium, suggests limited room for further risk appetite, especially as rising yields on safer assets like money market funds and savings accounts may divert capital away from high-risk IPO investments.

“

With abundant market liquidity these days, the extent to which funds will actually flow into the Big 3 IPO market will largely depend on market conditions at the time of listing, such as market interest rates and risk appetite. If yields on money market funds and deposits, which are close to risk-free assets, rise due to global interest rate hikes, demand for high-risk investments like IPOs will decrease.