The wave of mega IPOs is sweeping through the US stock market! The AI bull market frenzy faces a triple pressure test of "IPO drain + US bond yield pressure on valuation + crowded positions".

From Tony Pasquariello, global head of coverage at Goldman Sachs, the financial giant from Wall Street, stated that as the IPO activity in US stocks has fully rebounded and tech companies related to AI continue to raise large amounts of capital, investors are increasingly concerned with whether the US stock market can absorb this rapidly growing new wave of IPOs. According to Goldman Sachs, the super bull market in US stocks since 2023 is facing multiple market pressures including massive liquidity extraction from the supply side, pressure on valuations from rising long-term bond yields, and AI-themed positions becoming increasingly crowded. This stress test does not necessarily mean the end of the bull market, but as funds are reallocated, valuation expansion will become more difficult, making US stocks more susceptible to periodic corrections or high-volatility consolidation periods. Moreover, the current super IPO wave is combined with a high yield environment. If the 10-year US Treasury yield remains high, the risk-free rate on the denominator of DCF will continue to suppress high-duration growth stock valuations. If there is also an expansion in IPO supply, crowded AI semiconductor positions, rising midterm election volatility, and an overly concentrated weight in the tech index, then US stocks are more likely to transition from a "one-way AI bull market" to a "high-volatility, strong differentiation, periodic downturn" trajectory. Pasquariello stated in a report to clients after meeting with star fund managers in Boston and Toronto on May 22 that Goldman Sachs currently expects the equity market supply size in 2026 to be around $600 billion, of which approximately $160 billion is closely related to US stock IPOs. In nominal US dollar terms, these figures may seem large, but Pasquariello believes that when measured as a percentage of total market value, the market background looks far less extreme. He compares the current situation with previous periods of surging IPO activity in the US stock market, including the late 1990s tech bubble, the capital restructuring after the 2009 financial crisis, the financing boom during the 2020 pandemic, and the SPAC frenzy in 2021. One of the conclusions of this Goldman Sachs research report is that despite concerns about investor fatigue in positions, the US stock market still has the ability to absorb "high-quality IPO giants." This outlook from Goldman Sachs is crucial for investors expectations, as a healthy IPO and equity issuance market typically supports market trading activities, private equity exits, and broader risk appetite expansion. If the actual demand for stock offerings weakens unexpectedly, the substantial increase in supply could exert pressure on valuations. Midterm election volatility may be approaching, and bond yields remain a key risk for stocks Pasquariello also stated that Goldman Sachs' high-net-worth clients have been repeatedly asking investors when they should start paying closer attention to the 2026 US midterm elections. He cited research by Goldman Sachs strategist Ben Snider which indicates that the US stock market usually tends to trade sideways before midterm elections, with market volatility rising in the summer and peaking around October. If political uncertainty coincides with high interest rates and tight positions in tech stocks, this pattern could make recent rebounds in risk assets more complex. Another major concern for investors is how high US Treasury yields can rise before stocks start to come under pressure. According to Goldman Sachs' analysis, historically, when the 10-year US Treasury yield rises by about two standard deviations within a month, stocks typically come under pressure. In the current market environment, Pasquariello stated that this threshold corresponds to a significant increase of approximately 45 basis points in nominal yields. Goldman Sachs senior strategist Ryan Hammond noted that earlier this week, the market was very close to this level. As investors increasingly debate whether optimistic sentiment driven by strong economic growth, surging demand for AI computing power, and infrastructure development can offset the drag from higher borrowing costs, the relationship between yields and stocks becomes more and more important. Continued massive influx of AI positions into semiconductor sector may bring significant reversal risks Pasquariello stated that clients are actively asking about the most core benefiting market sectors in the field of artificial intelligence, especially how aggressive positions in semiconductor companies have become. Goldman Sachs' prime brokerage data shows that with hedge funds and institutional investors continuing to chase the biggest winners in AI, total exposure and net exposure to global semiconductor stocks remain at historical highs. This market concentration reflects that market leadership has narrowed down to chip and AI server manufacturing giants closely linked to the AI computing infrastructure boom. Goldman Sachs stated that for investors, this trend of overcrowded positions brings both opportunities and risks. Strong earnings momentum and continued strong AI system spending by tech giants support the bull market trajectory of semiconductor stocks, but overcrowded positions can make the sector vulnerable to significant reversals when analyst growth expectations cool off or bond yields rise further. IPO frenzy hitting high yield environment! Goldman Sachs warns of "liquidity drainage" stress test for US stock bull market Goldman Sachs expects approximately $600 billion in equity supply by 2026, with about $160 billion coming from IPOs in US stocks, which does not necessarily spell the end of the bull market; if high-quality assets are issued with strong profit expectations and sufficient risk appetite, the market can still absorb them. However, it will change the marginal liquidity environment: funds will need to be reallocated between secondary market existing stocks, new IPOs, private equity exits, and AI market leaders, making valuation expansion more difficult. The real danger lies in the fact that the IPO supply rebound is happening in the context of high long-term US Treasury bond yields and crowded positions in AI semiconductors. Goldman Sachs mentioned that historically, when the 10-year US Treasury yield rises by about 45 basis points within a month, stocks have historically been more likely to come under pressure; this correspond to a rapid increase in the risk-free rate on the denominator of the DCF, which will compress the valuation multiples of high-valuation growth stocks. At the same time, another financial giant on Wall Street, Bank of America (BofA), revealed in a fund manager survey report that the global semiconductor sector has become one of the most crowded trades, with about 75% of surveyed fund managers considering semiconductors as the most overcrowded trade, indicating that the "AI computing power + AI applications" trade theme is facing a significantly reduced "tolerance rate." Goldman Sachs' latest conclusion is not that "the US stock market is bound to enter a bear market," but that US stocks are more likely to experience periodic corrections or high-volatility consolidation. The IPO frenzy drains liquidity, high yields suppress valuations, and overcrowded AI positions amplify the resilience of the rebound, combined with seasonal volatility leading up to the 2026 midterm elections, will shift the market to a "pressure test on profit realization and liquidity absorptive capacity" from a "one-way rise." If AI profits continue to exceed expectations, corporate buybacks and passive funds remain strong, the correction may be a technical adjustment within the bull market; if 10-year and longer-term US Treasury yields continue to rise, IPOs absorb too much capital, and AI leader performance momentum slows, the correction could be deeper. Wall Street financial giants, such as Goldman Sachs, recently stated that the main contradiction in the current US stock bull market is transitioning from "Can AI bring growth?" to "Can the scale of monetization/revenue generation brought by AI offset higher discount rates and greater stock supply generated by AI?" Goldman Sachs still expects a significant upward space for the S&P 500 index within the year, citing reasons such as strong earnings growth driven by massive AI computing related investments, and estimating that AI investments will contribute to approximately 40% of the S&P 500 index's earnings growth; this indicates that the fundamental mainstream of the US stock market remains strong, but the market is no longer in an unconstrained environment of valuation expansion. SpaceX, OpenAI, Anthropic lining up for IPOs, Wall Street alert for liquidity being devoured by super IPO giants Like the research presented by Goldman Sachs, when AI trades are highly crowded, the tech stock weighting approaches historical bubble territory, the 10-year Treasury yield remains high, and IPO supply is surging, the US stock bull market is entering a major stress test. Especially with SpaceX planning to go public in June with a target financing of approximately $75 billion and a valuation of around $1.75 trillion, this is enough to represent a historic liquidity test at the highest level of an IPO. Compared to Goldman Sachs' neutral position, another financial giant on Wall Street, Bank of America, presents a warning more inclined towards "market structure risk": if SpaceX, OpenAI, and other super IPOs successfully launch, the tech stock weighting in benchmark indices may exceed 48%, surpassing the concentration peaks seen in historical stages such as the roaring 20s, the Nifty Fifty, the Japanese bubble, and the tech internet bubble. Bank of America emphasizes that the current market already exhibits typical late-cycle bubble characteristics: strong price momentum, high participation from retail investors, low volatility, crowded positions in AI leaders, and highly concentrated market leadership; however, these massive IPOs do not necessarily mean the market will crash but indicate that the apparent prosperity in the indices may mask insufficient breadth within, a significant market downturn will be amplified by the concentration of positions. The super IPO frenzy itself has dual meanings. On one hand, it indicates a strong risk appetite in the capital market, the reopening of the primary market exit channel, revitalization of private equity and venture capital ecosystems, which are typically signs of a deepening bull market; on the other hand, giant IPOs will absorb secondary market liquidity, forcing funds to be reallocated between AI leaders in existing stocks and new listed AI platforms. If SpaceX goes public with a valuation of around $1.75 trillion, raising billions or even larger amounts of capital, it will not just be a "commercial spaceflight IPO," but also a historic liquidity test at the highest level of an IPO. However, Goldman Sachs' team of strategists indicated that if SpaceX's debut is strong, OpenAI and Anthropic secure high-quality capital demand in the aftermath, profit expectations for the AI computing infrastructure and AI application software leaders continue to rise, and yields marginally drop, this will be the "second act" of the AI super bull market; if IPO pricing is excessive, post-listing breaks, long-term yields continue to rise, and semiconductor positions reverse, this could be a signal of a temporary peak in the US stock market. The real question the capital markets need to answer is: will the AI super IPOs bring "high-quality asset supply" or "the liquidity siphon at the peak of the bubble."