David Solomon is the CEO of one of the world’s largest and most powerful financial institutions, Goldman Sachs (GS 2.16%). A key part of the company’s business is investment banking. When asked about the market’s ability to absorb a string of large initial public offerings (IPOs), including SpaceX, OpenAI, and Anthropic, Solomon was very upbeat.
Essentially, he believes that “greed” is running high today. But there was a hidden warning in his comments, as well, for anyone who remembers the dot-com bubble.
Image source: Getty Images.
$10 billion in Alphabet stock shows that investors are greedy
Over time, Wall Street tends to swing between periods of fear and greed. Companies look to take advantage of times when investors are greedy, often by existing public companies issuing stock or conducting initial public offerings. Giving a read on the current environment, David Solomon, in a conversation with CNBC’s Leslie Picker, highlighted Alphabet‘s (GOOG 0.03%) stock performance after it announced plans to sell $80 billion worth of new stock to help fund the company’s artificial intelligence ambitions.
Today’s Change
(-0.03%) $-0.12
Current Price
$358.27
Key Data Points
Market Cap
$4.4T
Day’s Range
$357.15 – $362.50
52wk Range
$163.33 – $404.47
Volume
744.9K
Avg Vol
19.4M
Gross Margin
60.43%
Dividend Yield
0.23%
To be sure, Alphabet shares fell after the news, which is normal in such situations, but it didn’t crash. That was a distinct possibility given the size of the equity sale. Goldman Sachs’ Solomon believes that this is a sign that the investor appetite for IPOs is strong, which is good news since big names like SpaceX, OpenAI, and Anthropic are all planning large IPOs. Solomon told CNBC, “When capital’s available, if you’re capital consumptive and it’s available, take the capital.”
In other words, greed is high today. Companies that need capital should act, or they could miss the window of opportunity. And Goldman Sachs is happy to help. But that brings up another comment from the investment bank’s CEO about greed, which he noted can “turn into fear very quickly, but that doesn’t mean it will.”
^SPX data by YCharts
Don’t forget history if you are a long-term investor
That’s true over the short term, since history shows that greed can push stock prices far higher than anyone imagines. But over the long term, history is very clear. Greed will eventually give way to fear, and when it does, there could be a lot of pain to go around. The last big period for IPOs, all clustered around a new technology, was the dot-com bubble. The chart above highlights what happened when that bubble burst, and fear gripped the markets. It wasn’t pretty.
A big driver of that fear was the uptick in IPOs of companies of increasingly lower quality. At the turn of the century, the IPOs were mostly internet stocks; today, they are artificial intelligence stocks. And the problem could again boil down to too many companies trying to take advantage of the greed on Wall Street today. At some point, that greed will be exhausted, and the broader markets, which are all trading near all-time highs as they were before the dot-com bubble popped, could suddenly find that fear starts driving share prices lower.
Today’s Change
(-2.16%) $-22.99
Current Price
$1041.59
Key Data Points
Market Cap
$314B
Day’s Range
$1031.01 – $1055.97
52wk Range
$592.90 – $1073.97
Volume
611.2K
Avg Vol
2.1M
Dividend Yield
1.60%
Don’t feel like you have to rush into AI
As an investment bank, Goldman Sachs has a horse in this race, so the company’s CEO being positive about the IPO market isn’t shocking. His company stands to generate material investment banking fees from an IPO boom. And, at this point, Solomon’s view seems reasonable, since the companies holding IPOs are considered industry leaders.
However, you should try to keep your greed in check, because eventually the market’s greed will turn into fear. And at this point, it is still far from clear which companies will be the long-term winners in AI. In fact, those who bought tech stocks after the dot-com bubble burst likely made out much better than those who bought into the IPO boom at the time. It wouldn’t be surprising if history repeated itself this time around.
In other words, you shouldn’t feel like you’ll be missing out if you don’t buy into the IPO excitement around SpaceX, OpenAI, and Anthropic. You may get a second chance, and possibly better prices, after the greed driving this IPO boom wears off.
