Concerns surrounding the high concentration of technology stocks in the U.S. market are intensifying, as analysts warn that recent trends indicate a potential bubble. Michael Hartnett, an investment strategist with Bank of America, highlighted that upcoming mega initial public offerings (IPOs) from companies like SpaceX, OpenAI, and Anthropic could raise the market concentration of technology stocks in the S&P 500 to an alarming 48%.
In his latest report, Hartnett described the current market conditions as “so bubbly,” pointing to robust price activity, heightened retail investor enthusiasm, and a decline in volatility. He noted that the concentration of tech stocks may soon exceed historical bubbles observed in the 1920s, 1970s, 1980s, and 1990s, with the exception of the railroad bubble of the 1880s, which peaked at 63%.
The tech giants, commonly referred to as the “Magnificent Seven,” including NVIDIA, Microsoft, Apple, Alphabet, Amazon, Meta Platforms, and Tesla, have driven the sector’s weight to over 44% within the S&P 500, based on Bloomberg data. Hartnett stated that the addition of the aforementioned “Big Three” could push this figure further into bubble territory.
SpaceX has already initiated the process for its IPO, potentially set to be the largest market debut in history, with a valuation forecasted around $1 trillion. Meanwhile, OpenAI and Anthropic are reportedly racing to finalize their listings by year-end.
Owen A. Lamont, a senior vice president at Acadian Asset Management, has labeled the surge in equity issuance as the “Third Horseman of the Bubble Apocalypse,” emphasizing that should these three major companies go public in the same year, it could inject an estimated $3 trillion into the public market—reminiscent of the IPO wave from 1999. He warned that the market could also see hundreds of smaller companies following suit.
Recent market activity has shown signs of this exuberance, notably following the IPO of Cerebras Systems, which raised $6.4 billion, marking it as the largest semiconductor IPO to date. The company saw a significant 68% jump on its first trading day, reaching a valuation comparable to major companies like General Motors.
While record IPO activity could be indicative of a bubble, Lamont pointed out that it does not necessarily signal an imminent market decline. Historical analysis shows that bubbles can persist for years; for instance, the Netscape IPO in 1995 marked the beginning of the late 1990s tech bubble, which continued to grow for more than four years before peaking.
Recently, Bank of America’s Bull & Bear Indicator climbed to 8, triggering a contrarian sell signal for risk assets. This increase was attributed to substantial inflows into technology and emerging market bonds, alongside a record rise in equity allocation as reported in the Fund Manager Survey.
Despite the sell signals, Hartnett believes that bullish investors are unlikely to retreat from their positions until two key events unfold: the significant IPOs from the Big Three and a tightening of Federal Reserve policy, which he expects to follow a rise in consumer prices. He cautioned that an increase in bond yields could ultimately signify the end of these market booms and bubbles.
