SpaceX, OpenAI, Anthropic IPOs Test Trillion-Dollar Valuation Limits

The long-awaited SpaceX IPO has tested the limits of modern capital markets, with investor Steve Rattner calling the scale of valuations and fundraising unprecedented. The offering is expected to be followed by IPOs from OpenAI and Anthropic, reflecting optimism about artificial intelligence and its potential to transform the economy. These mega-IPOs highlight the growing concentration of value in a handful of tech giants, raising questions about whether such trillion-dollar valuations are justified. For stock market investors, the success of these offerings could signal a new era of growth driven by AI, but also risks of overvaluation. NowPrice shows live stock prices and charts reflecting market sentiment as these IPOs approach.

To assess valuation justification, investors often turn to the Fed Model, which compares the earnings yield of the S&P 500 (the inverse of the P/E ratio) to the 10-year Treasury yield. Currently, the S&P 500 forward P/E sits around 21x, above its 10-year average of 18x, while the 10-year yield hovers near 4.5%. This yields an earnings yield of roughly 4.8%, only slightly above the risk-free rate, suggesting stocks are not cheap. For mega-cap tech, forward P/Es can exceed 30x, implying even lower earnings yields. Buyback yields, however, remain supportive: the tech sector has repurchased over $200 billion in shares this year, boosting EPS growth. Options-implied volatility for these names, as measured by the VIX, remains subdued around 14, indicating market complacency about downside risks. Breadth indicators, such as the percentage of stocks above their 200-day moving average, have narrowed, with only about 40% of S&P 500 components above that level, signaling a market driven by a few large caps. Sector rotation has favored tech and AI-related names, while energy and utilities have lagged, reflecting a growth-over-value tilt.

Looking ahead, the ability of retail investors to participate in these offerings remains uncertain, as many are expected to be heavily allocated to institutional investors. The broader implications for market breadth and sector rotation will be key themes to watch in the coming months. If AI-driven earnings fail to materialize, the high valuations could lead to sharp corrections, particularly if Treasury yields rise further, compressing equity risk premiums. Conversely, sustained earnings growth could justify current multiples, especially if buybacks and low volatility persist. Investors should monitor the Fed's rate path, corporate earnings reports, and IPO allocations for clues about market direction.