'IPOs are like bananas: they need to ripen before they're ready to eat,' investor says
The four horsemen of the market bubble: surging inflows, overvaluation, bubble conviction, excess issuance
Is the surge in initial public offerings a red flag for investors? As U.S. issuance hits a record high only halfway through 2026, that's a debate ongoing in the market right now. It was also the question that was put to three U.S. strategists by Goldman Sachs in their occasional "Top of Mind" report published Wednesday.
Ben Snider, Goldman Sachs chief U.S. equity strategist; Jay Ritter, director of the IPO initiative at the University of Florida's Warrington College of Business; and Owen Lamont, the senior vice-president and portfolio manager at Acadian Asset Management were asked whether the IPO wave was flashing a "late-cycle warning sign?" and if it was, "whether the market can comfortably digest so much new issuance?
Of the trio, it was Lamont who was the most concerned. He accepts that higher equity issuance may simply reflect the capital demands of a transformative technology like artificial intelligence. But he also points out that "past bubbles have often been fuelled by new technologies and have followed issuance and capex waves, as corporates tend to sell equity when they believe it's over-priced."
GS estimates IPO gross proceeds will total a record $225 billion in 2026
Lamont has his own definition of "The Four Horsemen of the Market Bubble." It's a trope dating back to the dotcom boom of 1998-2000 when the label was affixed to a quartet of stocks: Microsoft $(MSFT)$, Cisco Systems $(CSCO)$, Intel $(INTC)$ and Dell $(DELL)$.
Lamont's updated version, however, cites overvaluation, bubble beliefs (whereby investors 'know' stocks are overvalued but buy them anyway because they think they will go up), equity issuance (when corporates aggressively exploit high valuations to sell equity) and surging inflows.
The current issuance wave represents at least one of those horsemen, but Lamont is keen to stress that "IPO waves can last for years so they may mark the beginning of the bubble rather than the end." The scarcity of extreme first-day pops on IPOs encourages Lamont that speculative euphoria may be absent at present.
Lamont is also cognizant of the fact that the issuance story is just about equity: it includes debt too. Goldman Sachs' chief credit strategist Amanda Lynam has also cautioned about the risks posed by market saturation constraints and issuer concentration.
Moderating the conversation between Ritter, Snider and Lamont, Goldman Sachs editor Jenny Grimberg emphasizes that regardless of whether IPO issuance is a warning or not, it's a reality that IPOs tend to underperform in the first few years. Lamont's recommendation therefore, is to exercise patience."IPOs are like bananas: they need to ripen before they're ready to eat."
Another aspect of the issuance troubling Lamont is that some major index providers - like Nasdaq with SpaceX $(SPCX)$ recently - are including large IPOs much earlier than before and Lamont views this development disapprovingly.
Snider and Ritter are more sanguine than Lamont. Snider compares the size of the U.S. equity market (the overall market capitalization of U.S. stocks is about $75 trillion) with the $700 billion of corporate issuance he expects this year. Let's face it: it's a drop in the ocean. Snider also argues that there's a "self-limiting dynamic" to IPO issuance: if the demand isn't there, the deals won't come.
Many of the IPOs these days are far more profitable than they have been in the past, the report shows.
Profitability among recent IPOs is higher than in prior IPO booms
Ritter acknowledges high new issuance volume has been a past predictor of lower market returns in the future but derives comfort from the $1.6 trillion of cash U.S. corporates have returned to investors in recent years via buybacks and dividends. The markets are absorbing a fraction of that available capital.
-Jules Rimmer
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(END) Dow Jones Newswires
July 23, 2026 05:34 ET (09:34 GMT)
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