Bank of America warns: SpaceX super IPO could push market concentration beyond bubble levels

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Bank of America strategist Michael Hartnett said that the mega IPO planned by SpaceX and OpenAI could boost the weight of tech stocks in the stock market benchmark index, surpassing the concentration levels seen during the financial bubble era.

In a report, Hartnett pointed out, "Strong price momentum, retail frenzy, declining volatility... the bubble smell is too strong." He stated that the super IPO combined with AI giants makes it easy for market concentration to exceed the approximately 48% index weight seen during the roaring 20s, the "Beautiful 50" of the 70s, Japan in the 80s, and the tech and telecom boom of the 90s.

Technology stocks now account for over 44% of the S&P 500 index. Further concentration of weight could exacerbate asset allocators' dilemmas, as risk management constraints prevent funds from fully tracking these weights in their portfolios.

SpaceX, owned by Elon Musk, has outlined the world's largest IPO plan, while ChatGPT developer OpenAI is trying to go public before its competitor Anthropic. These giant IPOs will fuel optimism around tech and AI stocks, which has already driven one of the narrowest rally periods in decades.

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