Risk vs. reward

BofA’s Hartnett warns Mega-IPOs risk bubble like roaring ‘20s. Mega-IPOs like those eyed by SpaceX and OpenAI threaten to push the weighting of tech in equity benchmarks beyond market-bubble levels of concentration. 

Technology already accounts for >44% of the S&P 500 Index, and further concentration potentially increases problems for asset allocators who are prevented by risk management constraints from fully tracking these weightings in their portfolios. 

However, markets show All Time Highs almost daily again. 

The extraordinary thing about this is that it happened against every headwind imaginable:

• Active war in the Middle East. Oil at $100.

• Inflation at 3.8%.

• Bond yields at 19-year highs. 

None of it stopped it. But two, maybe three, things drove it above everything else.

1. Nvidia posting $81.6 billion in revenue, and a stunning profit margin.

2. $325 billion in AI capex flowing through the entire economy.

 Or as a % of GDP…(crazy chart)

3. Even though there is one head and shoulders above the rest, the year-on-year revenue growth remains impressive.

The market is not ignoring the risks; it is betting that AI capex is bigger than all of them combined.

Sources: HolgerZ, BofA, Bloomberg, Charlie Bilello, Creative Planning, Trend Spider, Bull Theory, Hedgie, Oliver Groß, minenergybiz, BCA research