The Mega IPO Boom Is Flashing a 40% Crash Warning
Wall Street has a tell, and it’s flashing again. Companies are cashing in at the fastest clip since the dot-com era, with SpaceX, Alphabet, and others issuing record stock. When firms collectively become sellers rather than buyers, it usually means valuations have stretched too far — and some strategists now see a crash on the table.
- GMO’s historical research shows that when IPOs reach 5% of total market cap, the S&P 500 tends to decline ~40% in the following 12 months.
- When investors buy into mega-IPOs, they typically sell existing stocks to fund it — and every $1 that leaves the market erases $5 in total market cap.
Spending off a cliff: While raising overpriced stock is one problem, spending it without ROI is another. Goldman Sachs flagged that several Big Tech firms have consistently underperformed as their AI spending climbed — a disconnect between what companies are spending and what shareholders are getting back. The math looks worse abroad, with China’s breakthroughs in the GLM-5.2 model suggesting that frontier AI outside the West is getting cheaper fast. According to Goldman, the rubber band snaps when one major spender decides less is more, and nobody’s penciling that in yet.
