Talk of a potential 40% market crash is popping up in financial headlines these days, and it has enough surface logic to be taken seriously.
Space Exploration Technologies Corp. (SPCX +4.06%), best known as SpaceX, just completed the largest initial public offering (IPO) in U.S. history, raising $75 billion at a $1.75 trillion valuation. Anthropic has confidentially filed for an IPO targeting $30 billion at a valuation of roughly $965 billion. OpenAI is expected to follow next year. As exciting as all these big-name IPOs might be, they could also trigger a big drawdown, according to financial commentator Mark Hulbert.
Hulbert’s analysis draws on academic research by Harvard economist Xavier Gabaix and the University of Chicago’s Ralph Koijen, who found that every dollar withdrawn from U.S. equities causes total market cap to shrink by $5. Applied to the roughly $200 billion these three IPOs are expected to raise, that multiplier implies a $1 trillion hit to market value — and separate GMO research correlating IPO volume with forward returns puts the 12-month decline closer to 40%.
Most data makes a 40% crash scenario look unlikely — while making a more targeted, painful correction in specific pockets of the market look very real.
Image source: Getty Images.
The real mechanism
U.S. money market funds currently hold approximately $8 trillion in assets. Total U.S. equity market capitalization exceeds $50 trillion. The combined raise of all three IPOs represents roughly 0.4% of investable U.S. equity capital. Ed Yardeni, whose 50-year track record as a market strategist commands attention, ran that math explicitly in a client note and concluded that the effect on the overall pool of available investment capital is “manageable” — in other words, the market is large enough to absorb these offerings without a systemic shock.
What the investment banks underwriting these IPOs (and collecting billions in fees to bring them to market) are correctly recognizing is that the capital is there. What they’re understating: The question isn’t whether the money exists. It’s which money moves, and what it moves out of.
Fund managers getting allocations to new positions don’t wire cash from savings; they sell existing positions. And they don’t sell randomly. They sell what most closely resembles what they’re buying. SpaceX, Anthropic, and OpenAI are AI and tech companies, so the capital funding their debuts is coming out of AI and tech portfolios.
You already saw it once this year, when the Nasdaq dropped 4.18% on June 5 — its worst single day since April 2025 — in the week before SpaceX priced its IPO. The jobs report got the headlines, but the real driver was hedge funds selling richly valued chip stocks and AI infrastructure companies to make room on their books for SpaceX.
If Anthropic and OpenAI follow within the next 12 months, the same mechanism will run again. Twice. Nvidia (NVDA +2.66%), AMD (AMD +7.89%), and the AI infrastructure businesses that absorbed the June correction, could face another round of selling. And that pricing pressure could fuel doubt in the markets about whether the likes of Alphabet (GOOG +0.67%) and Amazon (AMZN 0.68%) will continue to spend so aggressively on AI infrastructure — which would justify even more selling.
The S&P 500 won’t be adding SpaceX, Anthropic, or OpenAI for at least another year, despite reports that the benchmark index might relax its rules requiring 12 months of trading history as well as positive earnings. However, the Nasdaq did amend its rules in May, allowing megacap IPOs to enter the Nasdaq-100 — and the Invesco QQQ Trust (QQQ +1.70%) ETF, which tracks it — within 15 days of listing. SpaceX is projected to land somewhere in the 0.5% to 1% weight range almost immediately.
Passive managers tracking QQQ become forced buyers regardless of their view on the valuation. That’s real demand, and it helps the IPO. But index additions displace existing constituents, and the displacement falls hardest on whatever’s already overweighted. In QQQ, that’s Nvidia, Microsoft (MSFT +1.33%), and Apple (META +0.28%).
Today’s Change
(0.28%) $1.55
Current Price
$564.15
Key Data Points
Market Cap
$1.4T
Day’s Range
$551.54 – $565.52
52wk Range
$520.26 – $796.25
Volume
834.5K
Avg Vol
17.1M
Gross Margin
81.94%
Dividend Yield
0.37%
What a 40% scenario looks like
Every S&P 500 decline of 40% or more on record — 1929, 2000, 2008 — involved leveraged investors being forced to sell assets to cover losses, which pushed prices lower and triggered more forced selling in a cascade. The sell-offs did not come from a crowded IPO calendar. The dot-com comparison is instructive precisely because it runs counter to the 40% crash thesis: Markets peaked before the IPO pipeline began to overflow, not because of it. The valuation problem came first; supply just accelerated a process already in motion.
That’s a more specific and more actionable problem than a 40% headline. If you’re overweight in Nvidia, AMD, or other AI infrastructure names, the question isn’t whether to sell. It’s whether your time horizon is long enough to absorb another round of mechanical selling unrelated to the underlying businesses. The rotation pressure is real, but I think it is temporary. The companies printing money on AI compute aren’t going away. Know what you own, and decide in advance how much drawdown you can sit through, so you’re not making that call in the middle of it.
