Big IPOs unlikely to disrupt returns in the tech sector: Barclays

Investing.com -- Concerns that a wave of large technology initial public offerings could crowd out demand for listed mega-cap stocks are overblown, according to Barclays.

Analyst Venu Krishna said the firm has picked up investor concern speculating that large tech IPOs are affecting portfolio manager allocations in listed names, particularly in the highly liquid large- and mega-cap segment.

However, a review of historical data is said to argue against a significant disruption to tech sector relative returns.

"We think this is mostly overblown; IPO waves typically correspond with strong markets, when healthy capital flows should readily facilitate new issue absorption, even for large deals in which the total raise is a minor fraction of firm value," Krishna wrote.

Barclays conducted an event study of prior tech IPO waves and said it fails to establish a strong linkage between the expectation phase of IPO ramp-ups and tech versus S&P 500 relative returns.

The firm defined IPO waves as non-overlapping peaks in rolling aggregate six-month U.S. tech and internet IPO fundraising for deals of $100 million or more.

Barclays said the more important driver of sector performance remains the competitive dynamics of artificial intelligence rather than new issue supply.

"We think the market reaction function will continue to be guided by who wins and loses as AI continues to evolve," Krishna wrote.

The Barclays note follows speculation that several high-profile technology companies, such as OpenAI, Anthropic and SpaceX, could move toward public listings, raising questions on Wall Street about whether large new issues could absorb capital that might otherwise flow into existing listed names.

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