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UPCOMING IPO WAVE COULD CHANGE WHO WINS IN AI, SAYS BCA

A coming wave of blockbuster IPOs could reshape the AI trade, but it probably would not end the bull market by itself, according to BCA Research.

The brokerage argues public investors currently have limited ways to get direct exposure to private AI leaders, so they have been buying listed proxies such as chipmakers, cloud firms, software companies, hyperscalers, and other AI-linked stocks. That scarcity has helped support rich valuations in existing public AI beneficiaries.

But that could change if companies like OpenAI, Anthropic, SpaceX, Databricks, and others eventually go public. BCA warns that once investors can buy direct exposure to these AI leaders, "they may fund those purchases by trimming existing holdings in hyperscalers and other public AI proxies."

Large IPO waves often appear when markets are strong and valuations are high. They can absorb investor capital, limit further P/E expansion, and weigh on future returns.

BCA notes that while mega-IPOs are more common near market peaks, they are not reliable bear-market signals. Their estimate says around 20% of the largest IPOs coincide with S&P 500 peak months, which means 80% do not.

The potential IPO pipeline looks massive. The brokerage estimates it could represent more than $4 trillion of market value, or about 6% of the S&P 500's market cap. But investors would not need to absorb all of that immediately. Assuming an average initial float of roughly 6%, the actual new public equity supply would be closer to $200 billion.

That is significant, but BCA believes markets can handle it. Net equity issuance has been declining, buybacks still offset some supply, and passive index inflows are running near $20 billion per month. A $200 billion float would equal about 10 months of passive inflows.

"The greater risk, in our view, is not broad-market absorption but Tech leadership rotation," BCA wrote.

So the message from the brokerage is to stay invested, but be more selective, trimming crowded AI scarcity plays and favoring names with realized earnings, infrastructure bottlenecks, and durable cash-flow visibility.

(Ragini Mathur)

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