Global equities giant GQG Partners has cautioned that a surge of artificial intelligence-related companies listing in the United States will amplify the concentration of high-priced technology groups on Wall Street’s major indices. GQG Partners, which manages $US167 billion in funds, invests in and manages a portfolio of global equities for clients. This warning comes as Elon Musk’s SpaceX unveiled its IPO prospectus, potentially listing with a $US1.5 trillion valuation, alongside ChatGPT maker OpenAI, rushing towards a public listing at $US850 billion. These mega-IPOs are expected to be fast-tracked onto major indices like Nasdaq and MSCI, bypassing standard waiting periods.
GQG client portfolio manager Ben Larsen highlighted that indices are likely to become more concentrated, becoming “more narrowly exposed to the same theme” given the AI focus. He added that funding these IPOs could “put downward pressure on everything else” as investors sell existing holdings. GQG’s chief investment officer, Rajiv Jain, has previously labelled the AI stock surge as “dotcom on steroids”. Fellow investment firm Franklin Templeton also warned that a wave of new mega-caps could trigger a capital rotation away from popular software, semiconductor, and defence stocks, noting they would “compete for capital not only with each other, but also with existing publicly traded growth stocks.”
The growing dominance of tech stocks presents a dilemma for Australian exchange-traded fund investors, prompting questions about an “AI bubble” or a “once in a generation capital accumulation opportunity,” according to David Tuckwell, Chief Investment Officer of ETF Shares. Valuation concerns are prevalent, with GQG’s Larsen describing SpaceX’s implied price-to-sales multiple of over 100 as “eye-watering.” Jack Hu, who runs the Phoenix Growth Fund, holds a stake in SpaceX but acknowledges it is “very richly valued” and plans to trim. Despite their concerns, GQG remains open to investing if these companies align with their framework, as the public listings will provide greater clarity on their path to profitability.
