Why big tech IPOs starting with SpaceX next week could leave smaller retail investors holding the bag

Small investors with money in index funds could be left holding the bag when the AI investment frenzy – slated to kick off next week with the giant SpaceX IPO – eventually comes crashing down.That’s the warning from savvy investors including former Wall Street trader Lawrence McDonald, founder of the Bear Traps Report.Among other things, he cites the traditional market trajectory of any nascent technology.McDonald’s research platform has done some interesting analysis of the reported mega-cap valuations slated for IPOs on the upcoming artificial intelligence darlings, namely SpaceX, Anthropic and OpenAI, and why they won’t last.All will be coming public this year starting with SpaceX, which slated to price next Thursday and start trading as early as Friday.

The Wall Street hype machine is working overtime to pitch these stocks as the next Apple or Google.But McDonald has seen his fair share of market crashes and they all have similar attributes.

They begin with irrationally high valuations of IPOs, and company insiders selling their stakes before the market fully digests the froth.Retail usually gets slammed with losses when hot stocks begin to correct or crash. McDonald says the AI correction could be worse than previous routs since the hype is bigger than anything we have seen in years.That combined with the new dynamic of the markets – so many small investors play stocks through passive or index investing that are already heavily tilted toward tech – means even people who don’t want to roll the dice on AI will find themselves in the middle of the correction.McDonald tells me that the peeps who run the indices have compounded the problem by watering down standards of entry.

Companies used to have to trade publicly for a year and show profit before index entry, and for all their hoopla, neither SpaceX, OpenAI nor Anthropic are turning a profit.Wall Street is mixed on when that might happen.Yet the S&P is weighing a rule that allows immediat...