‘Invest with caution’
“With the SpaceX market debut on Friday, the Anthropic and OpenAI initial public offerings in the pipeline, and the sizzling tech stocks already on the market, there’s no shortage of betting opportunities,” says Jeff Sommer, a New York Times financial columnist.
SpaceX set its valuation way above the 40-to-one price-to-sales ratio, meaning it would take 40 years of sales to equal the market value at that share price.
Stocks valued above that level rarely have made money over the next three years, Sommer says. Because the Anthropic and OpenAI public offerings still are at a preliminary stage, there’s less information about them — “but their valuations imply richly priced shares, too,” he says.
“For investors to accept these prices — as well as those of many other big tech stocks — is, in itself, troubling. It suggests that the stock market has entered perilous territory. If this isn’t already a full-blown bubble, it could easily become one,” Sommer says.
“I’m not getting out of the stock market entirely, because stocks have been great for the long term, and because I can’t forecast market movements with any accuracy,” he says. “But some times are riskier than others for stock market investors — and this may be one of those times.”
Sommer says he isn’t too worried, for now, about the direct effects of these IPOs on retirement investments. Either they won’t be represented for a long time in broad, diversified index funds like the S&P 500 or they’ll make up a tiny proportion of assets held by investors.
“My concern is that stock offerings of this remarkable size are coming to market only because AI stock prices have already risen through the roof,” he says.
“Instead of jumping onto the IPO bandwagon at this point, it might be wiser to assess whether you are already excessively exposed to AI through funds that hold big tech stocks. Perhaps this is a good time to rebalance, by reducing your U.S. megacap stock allocations, shifting some holdings into bonds and cash and diversifying globally, using low-cost index funds.
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