Blockbuster AI IPOs: The possible end of the 15-year US equity market bull run

Upcoming blockbuster IPOs from the AI darlings may herald the end of a remarkable bull run.

For about 15 years, the great puzzle of the US equity market has been its refusal to fall. Rising interest rates, trade wars, live wars, energy crises, geopolitical chaos – each was warned to be the thing that finally tipped the market over. Each, in turn, was not.

The S&P 500 has climbed inexorably, notching all-time high after high, powered by a small cohort of extraordinarily profitable technology giants whose valuations have gone parabolic.

But could the final catalyst for tipping the market over ironically be the success of tech companies themselves? There are two dynamics by which this could play out.

First, the prospect of landmark listings running into trillions of dollars from SpaceX, Anthropic and OpenAI has sent stockpickers, both professional and retail, into a state of giddy agitation.

Until now, the AI-driven tech rally has been a somewhat indirect affair for ordinary investors; its gains captured mainly by the chipmakers and hyperscalers who sell their wares to the AI companies, the shovel sellers in the gold rush. A new wave of initial public offerings (IPOs) from the AI large language model developers themselves would be something different; the ability to buy equity in the companies building the supposed intelligence, not merely the infrastructure around it.

SpaceX’s 200,000-word prospectus, released last week, is a case in point.

Amid visions of AI datacentres in space, it lays out a dream of asteroid mining and “passenger transport to the Moon and Mars”. All this rests on a business that is loss-making and with a governance structure that gives the mercurial billionaire Elon Musk almost complete control.

There can be no doubting Musk’s ambitions. “Our mission is … to make life multiplanetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars…”

The hype is palpable. The problem is that such soaring rhetoric does not usually coincide with the beginning of wealth creation, but the bursting of a bubble.

Massive IPOs usually mark the peak

According to Bloomberg, long run data suggest that the S&P 500 tends to underperform in the aftermath of major listings. The mechanism is straightforward, if somewhat mechanical; a surge in equity supply absorbs capital close to market highs, leaving fewer funds to sustain the upward market momentum elsewhere. Supply, in other words, destroys demand.

The scale of what is now being contemplated is immense. The three companies in question could command a combined valuation of circa $4-trillion, roughly 6% of the entire US stock market. That figure places the prospective issuances close to the equity expansions of the late 1990s dotcom boom and bust; a worrying parallel.

For comparison, the cumulative market value of all IPOs in the US between 1980 and 2025, adjusted for inflation, was roughly $12.5-trillion, according to Bloomberg data. A single wave of listings could add roughly a third of that in one go.

Every bull market has eventually been killed off by the process by which private wealth insiders – such as Musk and his SpaceX shareholder pals – seek public exit. This one may be no different.

Added equity supply draining system liquidity

Meanwhile, as these IPOs add supply to the equity market, liquidity is being drained from the system. The US AI hyperscalers – like Meta, Amazon and Google, whose capital expenditure as a share of GDP is already on course to dwarf the great railway build-out of the 19th century – are showing signs of strain.

Their spending has traditionally been funded by the astronomical free cash flow they generate. As even that has been overtaken by the obscene scale of the investments they are making into datacentres, they are increasingly reining in share buybacks and turning to debt for funding.

This matters because the past two decades have been characterised by the exact opposite. Delistings, share buybacks, mergers and the migration of companies into private markets have steadily shrunk the pool of publicly traded equities.

The American equity base – broadly defined as market capitalisation divided by price – now sits roughly 7% below its mid-2000s peak, according to Bloomberg. The number of listed companies has more than halved since 1995. Meanwhile, successive rounds of quantitative easing, following the financial crisis of 2008 and then the pandemic, have pumped liquidity into the system and kept demand for financial assets elevated.

The result has been a structural tailwind; growing pools of liquidity chasing ever fewer shares. That tailwind may now be turning into a headwind.

AI could lead to job losses, destroying AI bubble

But there is a second element as to how the AI rally might kill itself off. So long as employment levels remain elevated, especially in high-earning white-collar industries where employees have a portion of their paychecks automatically debited and invested in an equity tracker fund, more and more liquidity has gushed into equity markets.

But if, as some suspect, AI is going to displace a significant number of knowledge worker jobs, then the virtuous cycle risks going into reverse and becoming a vicious spiral. Fewer jobs and higher unemployment mean less liquidity going into the stock market, which means lower stock prices for AI companies.

Like the monster which ate its own tail, so could it be with this AI-driven bull market. These AI companies, by dint of the power of their own creations, could destroy the jobs, which in turn will destroy the savings and the liquidity that have been driving up their share prices in the first place.

This combination of excess demand for savings through blockbuster IPOs, lower supply of liquidity through AI-fuelled job losses and rising interest rates, all against a background of ever higher capex, could be this bull market’s death knell. And that is when it could explode, potentially creating a crisis scenario which could spill over very quickly into credit, commodities and emerging markets, including South Africa.

Yet as with all Greek tragedies, this will take time to play out. These displacements are not happening this quarter, or perhaps even this year. In the interim, there are returns to be had. Markets have mocked doomsayers before.

The difference this time – if there is one – is that the very mechanism powering the rally may be building the conditions for its collapse. DM