Century IPO triggers "stock swap" selling pressure! US stock retail investors crazy "pumping" chip stocks, hoarding funds to buy SpaceX(SPCX.US)

For a long time, the artificial intelligence (AI) and semiconductor sectors that have fascinated retail investors are currently facing fierce capital outflows. According to data from various Wall Street sources, non-professional traders are closing out their profits at the fastest rate in two years. However, this does not mean that the "retail army" is ready to admit defeat and exit. On the contrary, various signs suggest that they are actively cashing out their long positions and accumulating ammunition to prepare for the upcoming epic tech behemoth - SpaceX's initial public offering (IPO). Chip stocks become "ATM machines": Retail investors set record for longest selling streak since 2020 pandemic Vanda Research, an authoritative institution tracking retail fund flows, has revealed a surprising signal: as of this Wednesday, retail investors in the US stock market have been net selling stocks for three consecutive trading days. This is the first time since the global liquidity crisis triggered by the pandemic in March 2020 that retail investors have shown such resolute "three consecutive selling" behavior. Among them, the scale of capital outflows on Monday set a record high since November 2023. Even when tech stocks led the S&P 500 lower on Tuesday and the market showed a clear buying opportunity on the dip, retail investors who are used to "buying the dip" this time unusually chose to stay on the sidelines. The hardest-hit area of this selling spree is the AI hardware supply chain, which has seen the most insane gains in the past year. Vanda data shows that selling pressure is highly concentrated on chip manufacturers and companies that performed exceptionally well in the previous AI rally, with companies like Marvell Technology, Inc. being hit the hardest. On the 5th trading day, Qualcomm fell by over 6%, Broadcom Inc., ARM by over 5%, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, Micron Technology, Inc., AMD fell by over 4%, and NVIDIA Corporation fell by 3.7%. Viraj Patel, Global Macro Strategist at Vanda Research, said, "Current signs indicate that retail investors may be preparing funds for the upcoming major IPOs. Normally, retail trading activity should be much higher at this time of year - obviously, there is some more attractive force that is inhibiting their pace in the current secondary market." Institutional deconstruction: How did SpaceX become the ultimate money magnet for retail investors? The institutional framework of this round of fund rotation has been broken down as "stock swapping" logic in a research report from BNP Paribas. Greg Boutle, Head of US Stock Derivatives Strategy at BNP Paribas, pointed out that Micron Technology, Inc.'s recent downward price trend "may be related to individual investors withdrawing funds from recent top-performing stocks and leveraged products" - in May, Micron received about $6.5 billion in net inflows from retail investors, driving the stock up 87% for the month. In contrast to the semiconductor sell-off, DA Davidson's Technology Research Director Gil Luria attributed market behavior to IPO preparations: "Investors will have to free up funds from all their holdings, especially in the technology sector, including the largest companies, in order to provide capital for their investments in these IPOs." Boutle further speculated that SpaceX's retail allocation of up to 30% is changing individual investors' allocation behavior, with its attractiveness forcing position holders to exit from existing high-leverage tech exposures. The case of Micron receiving $6.5 billion in net inflows from retail investors in May, boosting the stock price by 87%, has become a clear reference for this fund outflow. BNP Paribas estimates that this round of stock-swapping selling pressure could trigger about $50 billion in concentrated unwinding demand. At the same time, part of the outflow of funds is flowing into the space theme. Data shows that global space-themed ETFs have received a total net inflow of about $8 billion year to date. Vanda Research also points out that retail demand for space-related stocks has reached the highest level since 2024. In the short term, the shift of retail funds from AI holdings to IPO targets like SpaceX has been validated by actual trading data. Rarely has a company sparked such a tsunami of enthusiasm before it officially goes public. In anticipation of this space company, which has not yet achieved sustained profitability but has a high reputation, the major brokerages on Wall Street have already launched a "battle for clients" in advance. In order to cater to Elon Musk's large fan base, Fidelity Investments has officially lowered the minimum threshold for IPO subscriptions in its retail brokerage accounts to $2,000. And the most direct catalyst for retail investors' crazy cashing out is: in this IPO, SpaceX has remarkably reserved up to 30% of the shares for individual retail investors. In comparison, traditional large IPOs typically allocate over 90% of shares to large institutions and hedge funds. Musk's move undoubtedly ignited a collective climax among high-net-worth individuals and Reddit forum retail investors. Currently, space economy concept stocks have become one of the few sectors in the US stock market that has bucked the trend and remained unaffected by risk aversion sentiment, with retail demand for the aerospace track soaring to its highest level since 2024. Wall Street's concerns: The historic IPO "serial maneuvers" of SpaceX may trigger a "digestive discomfort" in the US stock market, short-term volatility is on the rise However, the frenzied fund repatriation moves of retail investors, which are akin to "robbing Peter to pay Paul," are bringing noticeable ripples to the already volatile US stock market. Douglas Beath, Global Stock Strategy Analyst at Wells Fargo & Company Investment Research Institute, sounded the alarm during a phone interview. He pointed out that the percentage of stocks in US household financial assets is currently approaching the historic high of 35%, indicating that retail investors actually have no surplus "dry powder" in hand. Beath said, "Retail traders account for a large part of the so-called 'fast money' in the market. To buy new stocks, they must frantically sell existing positions, especially in profitable positions like NVIDIA Corporation, Micron, and other tech giants. This is likely to bring significant "indigestion" and market volatility for the remainder of the year." What is even more concerning for analysts is that SpaceX is just the "first course" of this capital harvesting spree. Gil Luria, Head of Technology Research at DA Davidson & Co., pointed out that after SpaceX's record-breaking IPO, multiple unicorns like Anthropic and OpenAI led by Sam Altman are also on this year's super listing schedule. Previously, Anthropic filed for an IPO under the joint book managers Goldman Sachs Group, Inc. and Morgan Stanley, with a latest post-investment valuation of $965 billion. Followed closely by OpenAI, led by Goldman Sachs Group, Inc. and Morgan Stanley, with a valuation of approximately $850 billion, reaching the market as soon as October. Investment banks estimate that up to 12 large AI companies are in the SEC review stage, with the total size of AI IPO channels exceeding $3 trillion. Although first-quarter data shows that the proportion of retail investors in the total trading volume of US stocks has fallen from 21% last year to 17%, when faced with this series of "super IPO explosions" with a cult-like following, the localized high-pressure fluctuations of retail funds are still enough to shake the market. In the long run, abandoning proven chip giants for investments in high-capital expenditure stages of the aerospace and generative AI primary markets overnight, whether it will ultimately be a great victory or a radical foam replacement, remains an unknown gamble. But one thing is for sure, before SpaceX sets its IPO price next week, traders in the global fixed income and equity markets will have to endure the severe pains brought about by the retail investors' "great migration." Patel from Vanda Research offered a more long-term view: "The sell-off last week and the short-term peak in the AI concept have given retail investors the opportunity to cash out and sell high-performing stocks." But for a market that has exhausted its fear of missing out (FOMO) sentiment, when investors are chasing the next trend, whether the existing trend can still provide enough liquidity for an exit will be a core issue affecting the pricing of the entire risk asset.