OpenAI, SpaceX and Anthropic IPOs Could Trigger Wall Street Shake-Up at Trillion-Dollar Valuations

The 7 trade a staple of the bull market since 2023, helping the major averages in three straight years of double digit gains.

But a new era of tech dominance is rising and about to shake up Wall Street.

Philanthropic open AI and SpaceX are going public this year, and they could all potentially IPO at $1 trillion valuations.

Now the S&P 500 are working on rule changes to fast track their inclusion into the benchmark indexes, and as a result, passive investment funds.

Will be required to buy the companies when they enter the indexes and they sell some names in order to do so.

Well JP Morgan does estimate passive funds will be forced to sell up to $95 billion worth of their existing holdings in the top tech stocks just to make room for SpaceX's initial index week.

Well joining me to break this down here at the New York Stock Exchange this morning is Jeff Gitterman, Managing Director of Gitterman Asset Management.

Jeff, great to have you here.

Thank you so much for joining me.

Thanks for having me.

Well, there's a lot of anticipation ahead of these mega IPOs.

So what do you think this will do for portfolios?

You know, it's so interesting because if you look at the market weighted equal weighted passive indexes versus the non-equal weighted indexes, the non-equal weighted, the market weighted are about twice the performance of the equal weighted indexes.

So that means the ones that overweight the MAG 7 as they grow have had 38% performance.

You bet.

17% performance are the ones that don't.

So there's a lot of money pushing those stocks up on those market weighted indexes.

Now all of a sudden Anthropic comes in, um, SpaceX first, OpenAI, these are, you know, $1 trillion.

Some are projecting $2.5 trillion for SpaceX.

All of that float that's going into the public markets has to now be bought, which means you have to rejigger your market weighted indexes all of a sudden.

It's the first time in the years that we've seen these markets run that you've got selling pressure coming in on the MAG 7.

So it's going to be super interesting.

It really depends on how much of that float is picked up by retail, how aggressive are the valuations that come out on SpaceX, and I think SpaceX will be really the determinant.

If SpaceX comes off big, then they're going to expect OpenAI and Anthropic to go off big as well.

And could cause a lot of selling pressure.

Yes, and when we're talking about index volatility risk with these IPOs, we continue to see general market volatility on a regular basis, such as a day like today when we're keeping an eye on geopolitical headlines.

But when it comes to these companies that are set to go public, these mega IPOs, what is the actual risk when it comes to the indexes?

I mean the risk is that people have to or people get.

Sell crazy over the fact that they want to move money more into these new IPOs.

So you have the index which has to reconstitute, but then you also have retail investors who all of a sudden have been riding the video and Facebook and other companies, and all of a sudden they want money freed up so that they can buy into the retail because SpaceX as an example is going to be offering through Schwab, Fidelity, and E-Trade retail opportunities.

Um, acquisition, a lot of big IPOs that we've seen in the past, unless you've got them in the private market, you've got to buy them right into the open market and compete with everyone else.

Not so here.

You're going to get allocations from a lot of these retail.

So are people going to be selling indexes or selling Mag 7 holdings to try to reallocate into some of these newer positions?

So it could be a lot of selling pressure.

It could be a dud.

I don't think so.

Poly Markets and Kashi are saying 85, 90%. chance that SpaceX goes off on at least 1 trillion, 15 to 30% chance it goes up to 2 to 2.5 trillion in market value.

It's going to be a wild market ride next week to your point, now we've got adding selling pressure coming today because this war again is not over.

It keeps lagging on.

It's kind of like an Irish goodbye.

We can't get out of this war.

Um, and today hostilities have risen and while the US is saying.

They've done defensive strikes.

I mean, what are defensive strikes in a war?

They're all offensive strikes, but here we go.

So we're going to be in for a wild ride the next two weeks.

So I do want to ask you about valuation given a lot of these moving parts in the marketplace right now.

So when we're talking about valuation for some of these unicorns, these mega IPOs including OpenAI, SpaceX, as well as Anthropic, they are older companies now set to go public. for growth?

It's a super interesting thing because we used to have companies that IPOed were small companies that had gotten some traction and came into the market much smaller than the group of the S&P 500.

So something coming into the Nasdaq and the S&P 500 historically wasn't coming in in the top three or top two weighted companies.

This is a totally new ballgame that we're in where these companies go long term until they get a huge valuation.

In the private market and then try to jump into the public market.

So there's really no visibility on will the public markets really reward them for this.

This is the first example we're having of it, or will the public markets penalize them for this.

Now in OpenAI and in chat, there's like an anthropic, there's obviously a battle between the two.

Anthropic just passed OpenAI and private valuation at least.

There could be a lot of pressure.

Those two companies are people leaning more towards one.

SpaceX is a little bit more independent of those two, has a lot of revenue, is cutting a bunch of deals this week.

Will they merge with Tesla?

There's a lot on the plate that have people interested in buying this.

I think even more so.

But I think SpaceX will be a huge determinant of whether OpenAI and Anthropic can really go off big or not.

And finally, Jeff, before I let you go, I do want to ask you about the Halo Investing playbook.

Here.

So what do you make of that and where do you think the value actually is?

I mean, look, we keep saying that digital is the future, but we keep butting up against this idea that without hard assets we can't get digital off the ground.

So we still need oil.

We still need cement, we still need to build data centers.

We still need electrification.

We as a firm are a big believer in Halo.

We've been running that model for a while.

I think it will become more and more.

Relevant over the next year or two, and the war and the closing of the strait is adding a huge amount of pressure to evaluations on hard assets and the critical minerals and metals that we need to keep producing these data centers and get the capacity and energy that we need.

Finally, before I let you go, we have about 60 seconds here, so I do want to get your take on what we're seeing when it comes to the US economy.

It's a big day as well as a big week for economic data, but given that inflation is so high.

What are your expectations for growth for the US economy for the rest of this year?

I mean, I think growth is going to be anemic.

We're in a economy.

People don't have spending money down at the bottom half of the economy.

People on the high end are going to start to pull back.

I mean again.

They have more spendable income, but it doesn't mean they're happy to keep buying something at a higher and higher price.

So I think you'll see a slowdown there as well.

So I think we're in for slow growth and inflation that lines up for stagflation, not a good.

Look for the economy at all, so I think we're in for a tough half of the 2nd year, and I think people are underrating how bad inflation could be from the Strait being closed this long.

I think people have a very false sense of security that the Strait is going to open and energy prices are going to go back down.

I don't see that happening.

I'm glad you bring that up because in New York morning trade we are looking at oil prices higher yet once again and we may be below that. $100 a barrel level, but we are elevated above $90 a barrel for both WTI as well as Brent, and we know here in the US that energy prices are higher, although we are buffered in comparison to other parts of the world.

People are paying paper versus market price.

People are paying a lot more for a barrel of oil than the market is reflecting right now in a lot of countries, sometimes double what the market is reflecting.

We will have to leave it there today.

Thank you so much.