The race to go public is on with OpenAI joining Anthropic in confidentially filing for IPO, and the offerings could rewrite the AI trade.
The mega IPOs could shake up which stocks investors are flocking to as the scramble to gain exposure to the most hyped technology since the internet. BCA Research chief strategist Noah Weisenberger said that the “monster” IPOs could actually weigh on current AI stock winners.
Profit taking from AI stock winners could fund mega-IPOs
“While the supply-demand balance seems somewhat favorable to absorb the new shares, the bigger risk is within Tech, where new AI listings could reduce scarcity value and pull capital away from existing AI beneficiaries,” Weisenberger said.
“Investors may fund new AI IPOs by trimming existing AI winners that have benefited from scarcity value,” he added.
The AI companies’ valuations are expected to come in around $1 trillion each, lagging SpaceX, with their IPOs catapulting them into the ranks the largest publicly traded companies.
“The coming IPO pipeline likely includes companies currently valued at more than $4 trillion, equivalent to 6% of current S&P 500 market cap and could represent over $200 billion of incremental US equity market capitalization to be absorbed,” BCA Research outlined.
The firm isn’t worried about the investors being able to absorb the new shares, but flagged a shake up among tech leaders as a key risk, saying: “This IPO wave looks digestible, but not costless.”
“Hyperscalers and other AI beneficiaries may be vulnerable because some already have direct earnings or valuation exposure to OpenAI, Anthropic, and other private AI leaders,” they said.
Previously, investors looking for exposure to Anthropic and OpenAI’s stellar growth would have to get it indirectly by buying stock in big stakeholders like Microsoft or Amazon.
The two chatbot giants will be the biggest pure-play AI trades investors can get their hands on when they go public, with other companies that produce AI models, like Alphabet and Microsoft, also involved in myriad other businesses.
Investors who bought other Big Tech stocks for indirect exposure have better options now.
“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,” the strategist said. “In that sense, the coming IPO wave may be less a market-top signal than a test of the scarcity premium embedded in today’s AI winners.”
AI winners are exposed to OpenAI and Anthropic pre-IPO
The AI trade has driven the tech-fueled bull market since late 2022.
Hardware names like Nvidia, AMD, and Micron have rallied to dizzying highs, and Nvidia alone is up over 1,000% in five years.
The hyperscalers, which provide cloud computing solutions for AI, have also seen large gains. The largest hyperscalers include Microsoft, Alphabet, and Amazon, and Oracle.
In addition to pursuing their own AI ambitions, many of these companies have also poured money into OpenAI and Anthropic.
Amazon has invested tens of billions of dollars into Anthropic since 2023 with the AI company in turn committing $100 billion to AWS to secure computing capacity to train and run Claude. Anthropic has a similar multi-billion partnership with Google.
These early investments with Anthropic have paid off with Amazon calling out $16.8 billion in pre tax gains from its Anthropic investments in the first quarter and Alphabet flagging $37.7 billion of net gains primarily driven unrealized gains on “nonmarketable equity securities.”
OpenAI has similar arrangements with Microsoft. The tech giant owns an estimated 27% of OpenAI since its restructuring as a for-profit company.
Chipmakers have also bought into the pair of AI giants ahead of their public debuts. Nvidia has invested billions into both Anthropic and OpenAI. Broadcom has been part of investing efforts as well as Qualcomm.
Given these stocks are already exposed to the AI companies, one OpenAI and Anthropic go public, profit taking from the current AI winners may be investors’ logical next step. This could also help investors avoid overexposure to the AI theme and the AI companies themselves.
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