SpaceX, Anthropic IPOs highlight growing clout of retail investors, say Goldman Sachs, Morgan Stanley CEOs - The Business Times

[HONG KONG] Deep pools of capital and increasingly sophisticated retail investors are helping to drive demand for mega initial public offerings, including those of SpaceX and Anthropic, said the CEOs of Goldman Sachs and Morgan Stanley.

“There’s been a handful of mega-IPO companies, but if you look at IPO volumes in terms of equity raised broadly, it looks like the 10-year average,” said Goldman Sachs chairman and CEO, David Solomon in a panel at the Global Financial Leaders’ Investment Summit in Hong Kong on Tuesday (Nov 3).

About US$16 trillion in capital is seeking attractive investment opportunities, and the reception to mega-IPOs is a reflection of the market’s receptiveness to quality companies, he added.

The growing institutionalisation of retail products is also helping to fuel these mega-IPOs, said Ted Pick, chairman and CEO of Morgan Stanley.

Retail investors are getting more sophisticated, resulting in longer ownership duration and growing savviness to how transactions trade over time.

“Index participation and the knowledge of banking winners long term by being part of these IPOs is something that retail now has really thought about in a more sophisticated way,” he added.

Retail investors account for between 10 per cent and 25 per cent of long-term ownership of these mega-IPO companies, which can serve as a ballast and dampen volatility over time, he noted.

“I think the emergence of retail as a vibrant component of the post-IPO ownership structure is here to stay,” said Pick.

Turning to artificial intelligence, Pick said that the projected capital expenditure forecast of US$10 trillion to US$15 trillion over the next five years was not unreasonable, given the scale to develop the technology.

The world is still in the early innings of the AI investment game, with the potential to drive a return on investment for gross domestic product growth of 50 to 70 basis points in the US and globally for a long time, he noted.

“These are extraordinary numbers, and I think they’ll come to pass,” he added.

Still, Pick flagged that past market cycles, including the dotcom bubble in the early 2000s and the 2007-2008 global financial crisis, served as reminders of the risks of excessive investor exuberance.

Not all projects will succeed, as some will have poor capital structures and will not pass the test of time, he said.

“This is all part of the innovator’s dilemma, as we go along,” he added.

For now, AI demand is expected to outstrip supply for the next couple of years, said Goldman Sachs’ Solomon, adding that hyperscalers remain attractive to finance as compute capacity continues to be absorbed.

But no one really knows how it will play out, and there will be winners and losers, he said. In particular, he noted that the value found in the application layer is still hard to identify at this point of time.

“With any technology acceleration, the technology tends to move faster than the enterprises and the people do,” he added.

Solomon remains optimistic about the opportunity AI has to enhance productivity, efficiency, investment and scale businesses.

This will impact not just large enterprises but also small companies, as he noted that 65 per cent of job growth in the US came from small businesses. The cost of starting a business and scaling it can be done at an attractive price, he said.

“I think one of the things people miss as investors is the opportunity for things to go better than we all expect,” said Solomon.

But he warned that risks remain and investors can “lose money” if expectations fail to materialise.

“It’s important to have a balanced, diversified view as you look at this, because none of us know,” said Solomon.

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