“When the ducks are quacking, feed them,” goes a Wall Street adage about satiating eager investors. It is a sentiment that now appears to be guiding Silicon Valley’s most valuable companies. Anthropic filed for an initial public offering on Monday, following Elon Musk’s SpaceX last month. OpenAI is also planning to file imminently. Not to be outdone, already listed Alphabet, Google’s parent company, said midweek that it wanted to raise $85bn in equity funding — its first stock offering in more than two decades. Despite the voracious appetite for tech assets, the surge of fresh equity supply is a new test for the US stock market’s AI-led boom.
The first challenge is absorption. Together, the three giant IPOs could command a combined valuation of around $4tn — close to one-third of the inflation-adjusted value of all US IPOs at first close between 1980 and 2025. For now, market watchers are confident that the “ducks” will easily digest this, particularly as index providers look to waive inclusion rules to fast-track the stocks into benchmarks. Lock-up provisions and large insider stakes also mean the initial amount of shares floated publicly by these companies is expected to be small anyway. America’s total market capitalisation is about $75tn, so there is enough liquidity to subsume the deals. Indeed, demand for AI exposure has been robust, even in the face of significant economic shocks.
But there is more equity supply to come. Other private tech companies, including Stripe and Databricks, could be mulling IPOs. Following on from Google, more hyperscalers could also issue new shares to finance further capital expenditure. Until now, investment in AI infrastructure has been propelled by operating cash flow. As this has waned, some Big Tech groups have reduced their stock buybacks and used debt to finance expenditure. With interest rates remaining elevated, more may turn to equity markets (or at least reduce their buyback activity).