Ed Elson on his newsletter Simply Put:
For years, stock prices have remained elevated, partly due to unusually low supply. The IPO market essentially collapsed after COVID. The number of public companies is half what it was 30 years ago.
This made investing quite easy, as all you had to do was keep investing in the companies that already existed. (Read: Big Tech.) The virtuous cycle of low supply and high demand drove the price of tech stocks ever higher, making them, on a risk-adjusted basis, arguably the greatest asset class in history.
But that’s all about to change, and violently so. SpaceX, Anthropic, OpenAI, and Google are about to inject roughly $350 billion of new equity into the market. That’s more money than the entire US venture capital industry invested last year, and more than was raised in IPOs over the past seven years combined. And that’s just four companies.
He presents a compelling argument suggesting that the stock market could enter a downturn due to investors rushing to buy these mega IPOs while withdrawing their money from other companies because they lack the necessary liquidity.
And he’s not wrong, as this has indeed happened in the past with the Xerox or Apple IPO, although with little to no long-term impact.