The concentration of tech stocks that has fuelled fears of a market bubble is about to get worse, warns a top strategist with Bank of America.

The anticipated mega-IPOs of SpaceX , OpenAI and potentially Anthropic would push the market concentration of technology stocks in the S&P 500 to 48 per cent, said Michael Hartnett, investment strategist with BofA Securities.

““Strong price action, retail mania, slumping vol … so bubbly,” Hartnett said in his weekly note The Flow Show. “Add mega IPOs to AI big boys and market concentration easily surpasses (~48%) bubbles of roaring ‘20s, Nifty 50 ‘70s, Japan ‘80s, TMT ‘90s.”

For years analysts have been worrying about the dominance of the Magnificent Seven over America’s main stock indices. These tech giants — NVIDIA Corp. , Microsoft Corp., Apple Inc., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Tesla Inc. — have already pushed technology’s weighting on the S&P 500 to over 44 per cent, according to Bloomberg.

The addition of “the Big Three” would push it well into bubble territory, said Hartnett. The only historical peak it would not exceed is the 1880s railroad bubble, which hit 63 per cent.

SpaceX has already filed for its initial public offering. The largest stock market debut in history, potentially valuing the company at US$1 trillion, could come as early as next month. OpenAI and Anthropic have yet to file, but are reportedly racing to launch their listings by the end of this year.

Owen A. Lamont, senior vice president of Acadian Asset Management, calls high net equity issuance the “Third Horseman of the Bubble Apocalypse,” and argued this past March that it had yet to show up.

However, if SpaceX, OpenAI and Anthropic all go public this year it could potentially add US$3 trillion in market cap to the public market which would amount to a 1999-sized IPO wave, he said.

“In reality, if the Big Three go public, we’d also probably see hundreds of small fry joining in,” he said.

Signs of this exuberance were already showing up after the market debut of semiconductor group Cerebras Systems Inc. earlier this month.

The artificial intelligence chip designer raised US$6.4 billion in the largest semiconductor IPO in history and ended its first day of trading up 68 per cent, which put the start-up’s value at about US$70 billion, up there with General Motors, reported the Financial Times.

Bankers told the FT fundraisings could hit record highs this year.

Even if an IPO wave signals a bubble it is not necessarily a sign of a market top, said Lamont, as bubbles can last for years. For example, the Netscape IPO of August 1995 was a “watershed event” in the late 1990s tech bubble, but the markets didn’t peak until more than four years later.

“Stock market bubbles are often heralded by specific IPOs which mark their beginning and not necessarily their end,” he said.

This past week, Bank of America’s Bull & Bear Indicator rose to 8, triggering the “contrarian sell signal for risk assets.” The reading was driven by inflows into tech and emerging market bonds, a record monthly jump in the Fund Manager Survey’s equity allocation and drop in cash levels to 3.9 per cent.

There have been 17 of these sell signals since 2002.

However, Hartnett said that bulls will not exit stocks until two things happen — the historic Big Three IPOs and Federal Reserve policy tightening after the U.S. consumer price index hits 4 to 5 per cent, which he expects in “coming months.”

“Surge in bond yields [is] how booms/bubbles end,” he said.

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High gas prices are putting the squeeze on Canadians’ spending in other areas, data out Friday revealed. Retail sales rose by 0.9 per cent in March, more than expected, but most of the gain was Canadians paying more at the pumps.

Sales gained in four of nine sectors, led by a 12.4 per cent increase at gasoline stations and fuel vendors.

Without, autos and gas, sales slipped 0.1 per cent and volumes were down 0.7 per cent.

“Overall, it appears that higher gasoline prices may already be limiting sales in other areas, which will see inflation-adjusted consumer spending growth decelerate again in the second quarter,” Andrew Grantham, senior economist at Canadian Imperial Bank of Commerce, said in a report to investors.

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