Mega IPO wave of 3 firms raises liquidity drain fears

A looming wave of mega-IPOs is testing the US stock market’s strength, with offerings from SpaceX, OpenAI, and Anthropic potentially absorbing hundreds of billions in capital and raising fears of a significant liquidity drain. While some see the influx of new shares as a catalyst for a market downturn, historical data suggests such issuance booms typically occur during periods of high investor demand and strong equity returns.

“Past academic literature and empirical evidence from issuance waves clearly show that they are typically accompanied by strong equity returns because they occur during periods of strong equity demand,” Deutsche Bank strategist Parag Thatte said in a May 22 report.

The debate centers on whether the sheer scale of the new supply will overwhelm demand. SpaceX’s offering alone, expected in June, could raise $75 billion at a valuation of roughly $1.75 trillion, making it one of the largest IPOs in history. Combined with expected listings from AI giants OpenAI and Anthropic, the total supply shock could be substantial. This has prompted warnings that the deals will “suck all the oxygen out of the room,” as Mergermarket’s Samuel Kerr told CNBC.

The primary concern is that a flood of new, high-demand stock will force investors to sell existing holdings to raise cash, especially with cash levels already near historic lows. Deutsche Bank’s modeling suggests a single large IPO could pull the market down by about one percent, an impact that could be magnified if the listings are clustered together. This view is echoed by Renaissance Capital’s Matt Kennedy, who noted that listing activity might quiet down as other companies avoid competing with the noise from SpaceX.

Demand Versus Supply

Despite the supply concerns, a counterargument championed by investors like Michael Burry and analysts at Deutsche Bank holds that the IPO wave is a symptom of a healthy bull market, not a threat to it. They argue that strong corporate earnings, high household cash balances of over $3.3 trillion, and persistent stock buybacks provide a robust demand-side buffer that can absorb the new equity.

“The narratives will far outweigh,” Burry said in a Substack chat, suggesting that the small float typical of modern IPOs minimizes the immediate market supply impact.

History supports this view. Over the past three decades, equity issuance upcycles have generally coincided with strong market performance. In periods following the start of an issuance wave, the S&P 500 has seen a median return of about eight percent over the next three months and over 20 percent over 12 months, with the 2008 financial crisis being a notable exception driven by forced recapitalizations.

Concentration Risk Magnified

The most acute risk may lie not with the broad market but within the already crowded large-cap technology sector. According to Deutsche Bank, positioning in large-cap tech stocks is in the 93rd percentile, indicating extreme crowding.

Nasdaq’s new “fast entry” rule, which allows companies like SpaceX to join major indexes like the Nasdaq 100 within 15 trading days, could exacerbate this concentration. This rule will compel the more than $1.4 trillion in passive funds tracking the index to buy SpaceX shares rapidly, regardless of price, potentially increasing volatility and tightening the squeeze on other holdings. The result could be a rebalancing away from other mega-cap tech names to make room for the new entrants, creating localized selling pressure in the market’s most heavily weighted segment.

This article is for informational purposes only and does not constitute investment advice.