Opportunity or risk: What mega-IPOs like SpaceX, Anthropic and OpenAI mean for markets

Key Concepts

• AI CapEx Boom: The massive capital expenditure by corporations into Artificial Intelligence infrastructure, which is driving economic productivity.
• Market Liquidity: The availability of cash reserves among investors, which is expected to support new IPO activity despite current market headwinds.
• Supply Chain Bottlenecks: Specific companies within the semiconductor and tech manufacturing sectors that hold pricing power due to their critical role in the AI ecosystem.
• Global Easing Cycle: The trend of central banks lowering interest rates, which has recently stalled, contributing to market volatility.
• Transformational Tech: Companies (SpaceX, Anthropic, OpenAI) that are fundamentally changing their respective industries, justifying long-term investment despite high valuations.

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Market Outlook and Economic Backdrop

Martin Schulz, Head of International Equity Group at Federated Hermes, characterizes the current economic environment as fundamentally strong, supported by robust corporate earnings and growth. However, he acknowledges several "headline headwinds" that are creating short-term market instability:

• Geopolitical Tensions: Renewed instability in the Middle East.
• Monetary Policy: A more hawkish stance from the Federal Reserve due to persistent inflation and a stalling global easing cycle (noted specifically in Indonesia).
• Market Volatility: A predicted "downdraft" or pullback during the summer months.

Despite these factors, Schulz maintains a bullish long-term outlook, arguing that rising productivity and sufficient investor liquidity will drive the market "up and to the right."

Analysis of High-Profile IPOs

Schulz evaluates three major tech entities—SpaceX, Anthropic, and OpenAI—as core long-term holdings, despite acknowledging that their current valuations are "steep."

• SpaceX: Viewed as a transformational company. While valuations are high, Schulz identifies Starlink as the current profitable core that will anchor the business as Musk integrates his various ventures.
• Anthropic: Highlighted for experiencing revenue acceleration at a rate "never seen in history." Their focus on the enterprise sector positions them well for their upcoming IPO.
• OpenAI: Viewed with more caution. Schulz notes a lack of clear revenue acceleration on the consumer side compared to the other two, though he still classifies it as a transformational entity.

The AI Supply Chain and Asian Equities

Schulz emphasizes that the "AI productivity boom" is not limited to US tech giants but is feeding through the entire global economy.

• Regional Impact: Korea and Taiwan are identified as the primary beneficiaries of the AI supply chain.
• Investment Strategy: Federated Hermes focuses on identifying "bottlenecks"—companies within the supply chain that possess the pricing power to generate high margins.
• Divergence: There is a significant performance gap between AI-exposed markets (Taiwan/Korea) and other emerging markets like India. Schulz confirms that recent field research in Taiwan and Hong Kong validates the reality of this supply chain demand.

Strategic Advice for Investors

Regarding the timing of investments in upcoming IPOs, Schulz offers the following framework:

1. Avoid the Hype: He expresses caution regarding entering positions during periods of extreme market hype.
2. Anticipate Volatility: Expect significant price swings in the first two to three weeks post-IPO due to institutional and index-based buying.
3. Wait for the Dip: Schulz suggests that after the initial "forced buying" phase, there may be a subsequent price correction, which would provide a more attractive entry point for long-term investors.

Conclusion

The main takeaway is that while the market faces near-term risks from inflation, geopolitical tension, and high IPO valuations, the underlying AI-driven capital expenditure cycle is a powerful, long-term growth engine. Investors are advised to look past short-term volatility and focus on companies that control critical supply chain bottlenecks, while exercising patience to avoid overpaying during the initial hype of high-profile IPOs.