As crowding in AI-related trading themes intensifies, Goldman Sachs has warned that a larger wave of IPO equity supply could temporarily overwhelm Wall Street liquidity and dampen bullish market sentiment.
Zhitong Finance APP learned that Tony Pasquariello, Global Head of Hedge Fund Coverage at Wall Street financial giant Goldman Sachs, stated that as U.S. IPO activity fully rebounds and AI-related technology companies continue to raise capital at scale, investors are increasingly focused on whether the U.S. equity market can absorb this surging wave of new listings. According to Goldman Sachs, the U.S. equity bull market since 2023 is now undergoing a multi-faceted stress test characterized by ‘massive equity supply-side outflows, valuation pressure from elevated long-end bond yields, and increasingly crowded positioning in AI-related names.’ While this test does not necessarily spell the end of the bull market, it will make further valuation expansion more difficult as capital reallocates across positions, making U.S. equities more prone to periodic pullbacks or high-volatility sideways consolidation phases.
More critically, this wave of mega-IPOs coincides with a high-yield-rate environment. If the 10-year U.S. Treasury yield remains elevated, the risk-free rate in the denominator of discounted cash flow (DCF) models will continue to weigh on valuations of long-duration growth stocks. Should IPO supply simultaneously expand, AI semiconductor positioning become more crowded, midterm election-related volatility rise, and tech index weights grow overly concentrated, U.S. equities could shift from a ‘one-sided AI-driven bull market’ toward a trajectory of ‘high volatility, strong dispersion, and periodic corrections’—meaning valuation expansion is no longer a free lunch, and the market will more rigorously differentiate between ‘AI super-platforms capable of generating cash flows’ and ‘AI bubble assets still anchored in distant total addressable market (TAM) narratives.’
In a client report issued following meetings with star portfolio managers in Boston and Toronto on May 22, Pasquariello noted that Goldman Sachs currently estimates total equity market supply in 2026 to be approximately USD 600 billion, of which roughly USD 160 billion is closely tied to U.S. IPOs.
While these figures may appear substantial in nominal dollar terms, Pasquariello argues that when measured as a share of total market capitalization, the current market backdrop appears far less extreme. He compares the present landscape to previous periods of heightened IPO issuance in U.S. equity markets, including the late-1990s tech bubble, post-financial-crisis recapitalizations in 2009, the pandemic-era funding surge in 2020, and the SPAC boom of 2021.
One conclusion of Goldman Sachs’ research report is that, despite concerns about investor positioning fatigue, the U.S. equity market retains the capacity to absorb ‘high-quality IPO mega-listings.’ This outlook is significant for investor expectations, as healthy IPO and equity issuance markets typically support trading activity, private equity exits, and broader risk appetite expansion. Conversely, if actual market demand for absorbing new equity issuance unexpectedly weakens, a sharp increase in supply could exert downward pressure on valuations.
Midterm election-related volatility may be approaching, and bond yields remain a key risk for equities.
Pasquariello also noted that Goldman Sachs’ high-net-worth clients have repeatedly asked when investors will begin paying closer attention to the 2026 U.S. midterm elections.
Citing research by Goldman Sachs strategist Ben Snider, he pointed out that U.S. equity markets typically trade sideways ahead of midterm elections, with volatility tending to rise during the summer and peaking around October.
If political uncertainty coincides with persistently high interest rates and tight positioning in tech stocks, this pattern could complicate the recent rebound in risk assets.
Another major concern among investors is how much higher U.S. Treasury yields can rise before equities start coming under pressure.
According to Goldman Sachs’ analytical report, historically, when the yield on the 10-year U.S. Treasury note rises sharply by approximately two standard deviations within a month, equities typically come under pressure. In the current market environment, Pasquariello noted that this threshold corresponds to a nominal yield increase of roughly 45 basis points. Goldman Sachs senior strategist Ryan Hammond pointed out that markets came very close to this level earlier this week.
The relationship between yields and equities is becoming increasingly important as investors intensify their debate over whether bullish sentiment—driven by strong economic growth, surging AI computing demand, and an infrastructure investment boom—can offset the drag from higher borrowing costs.
Massive AI-related positioning continues to flow into the semiconductor sector, raising the risk of a sharp reversal.
Pasquariello stated that clients are also actively inquiring about which market segments currently stand to benefit most from artificial intelligence, particularly how aggressively positioned investors have become in semiconductor companies.
According to Goldman Sachs’ prime brokerage data, both gross and net exposures to global semiconductor equities remain at historic highs as hedge funds and institutional investors continue chasing the biggest winners linked to AI. This concentration reflects a narrowing leadership dynamic, with market gains heavily concentrated among chipmakers and AI server supply chain leaders closely tied to the AI computing infrastructure boom.
Goldman Sachs noted that for investors, this overcrowded positioning presents both opportunities and risks. Strong earnings momentum and robust AI-related spending by tech giants continue to support the bull run in semiconductor stocks, but excessive crowding could leave the sector vulnerable to a sharp reversal if analyst growth expectations cool or Treasury yields rise further.
IPO Frenzy Meets High Yields! Goldman Sachs Warns U.S. Equity Bull Market Faces ‘Liquidity Drain’ Stress Test
Goldman Sachs forecasts approximately $600 billion in equity supply by 2026, of which around $160 billion will come from IPOs. This alone does not necessarily spell the end of the bull market; if the new issuance consists of high-quality assets with strong earnings visibility and ample risk appetite, markets can absorb it. However, it will alter the marginal liquidity environment: capital will need to be reallocated among existing secondary-market equities, new IPO supply, private equity exits, and leading AI names, making further valuation expansion more difficult.
The real danger lies in the timing: the rebound in IPO supply coincides with elevated 10-year Treasury yields and crowded positioning in AI-related semiconductors. Goldman Sachs noted that historically, equities have tended to come under pressure when the 10-year Treasury yield rises by about 45 basis points within a month—a rapid increase in the risk-free rate used in discounted cash flow (DCF) models that compresses valuation multiples for high-growth, high-valuation stocks.
Meanwhile, a fund manager survey by another Wall Street giant, Bank of America (BofA), shows that the global semiconductor sector has become one of the most crowded trades, with approximately 75% of surveyed fund managers identifying semiconductors as the most crowded trade—indicating that the margin for error in the ‘AI compute + AI applications’ thematic trade is shrinking significantly.
Goldman Sachs’ latest conclusion is not that a U.S. equity bear market is inevitable, but rather that the market is more likely to enter a phase of temporary pullbacks or a period of high volatility and sideways consolidation. The IPO frenzy is siphoning liquidity, elevated yields are pressuring valuations, and excessive concentration in AI-related positions is amplifying downside elasticity. Compounded by seasonally higher volatility ahead of the 2026 midterm elections, these factors are shifting the market from a one-way upward trend to a stress test focused on profit realization and liquidity absorption capacity. If AI earnings continue to exceed expectations and corporate buybacks and passive inflows remain robust, any pullback could be a technical correction within a bull market. However, if 10-year and longer-dated U.S. Treasury yields keep rising, IPO fundraising intensifies excessively, and momentum in AI leaders’ earnings slows, the correction could run deeper.
Wall Street financial giants such as Goldman Sachs recently noted that the primary tension in the current U.S. equity bull market is shifting from whether AI can drive growth to whether the monetization and revenue generation enabled by AI can offset higher discount rates and increased equity supply. Goldman Sachs still officially expects significant upside potential for the S&P 500 Index this year, citing strong earnings growth and substantial AI-related infrastructure investment, estimating that AI investments will contribute approximately 40% of the S&P 500’s earnings growth. This indicates that the fundamental narrative underpinning the U.S. equity market remains robust, though the environment is no longer one of unconstrained valuation expansion.
SpaceX, OpenAI, and Anthropic are all preparing for public listings, prompting Wall Street to warn about liquidity being devoured by IPO supergiants.
As Goldman Sachs’ research shows, with AI trades already highly crowded, technology stocks approaching historical bubble-level weightings, 10-year Treasury yields remaining elevated, and IPO supply surging again, the U.S. equity bull market is entering a critical stress test phase. Notably, SpaceX—founded by Elon Musk and encompassing an ambitious narrative around AI, satellite internet, and orbital AI computing clusters—is targeting a June listing with a planned fundraising amount of approximately $75 billion and a valuation of roughly $1.75 trillion, which would constitute the largest IPO in history and a major test of market liquidity.
Compared with Goldman Sachs’ neutral stance, Bank of America, another Wall Street financial giant, has issued a warning more focused on ‘market structure risks’: if mega-IPOs like those of SpaceX and OpenAI proceed smoothly, the weight of technology stocks in benchmark indices could surpass 48%, exceeding concentration peaks seen during the Roaring Twenties, the Nifty Fifty era, Japan’s asset bubble, and the dot-com bubble.
Bank of America emphasizes that the current market already exhibits classic late-cycle bubble characteristics: strong price momentum, high retail participation, low volatility, crowded positioning in AI leaders, and extreme concentration of market leadership. However, these massive IPOs do not necessarily imply an imminent market crash; instead, they suggest that apparent index strength may mask underlying weakness in market breadth. Should interest rate/yield trajectories or earnings expectations reverse, short-term market drawdowns could be amplified by concentrated positioning.
The IPO wave itself carries dual implications. On one hand, it signals strong risk appetite in capital markets, the reopening of exit channels in the primary market, and renewed activity in private equity and venture capital ecosystems—typically hallmarks of a maturing bull market. On the other hand, mega-IPOs absorb secondary market liquidity, forcing capital reallocation between existing AI leaders and newly listed AI platforms. If SpaceX lists at a valuation of around $1.75 trillion with fundraising in the tens or even hundreds of billions of dollars, it will represent not just a ‘commercial spaceflight IPO,’ but the most significant liquidity test in IPO history.
However, Goldman Sachs strategists note that if SpaceX’s debut is strong, OpenAI and Anthropic subsequently attract high-quality capital demand, earnings expectations for AI infrastructure and application software leaders continue to rise, and yields ease modestly, this could mark ‘Act Two’ of an AI-driven super bull market. Conversely, if IPOs are priced too aggressively, experience post-listing declines, long-end yields continue climbing, or semiconductor positioning reverses, it could signal a near-term market peak. The key question capital markets must answer is whether these AI mega-IPOs represent ‘high-quality asset supply’ or ‘liquidity suction at the peak of a bubble.’