OpenAI, SpaceX and other IPOs could break the S&P 500, Jeremy Grantham says

By Mark Hulbert

How an overheated IPO market this year could derail U.S. stocks

Unrealistic expectations for megacap IPOs could ultimately disappoint investors.

IPO excitement would be a challenge for the stock market.

Jeremy Grantham has a new and provocative argument for why the U.S. stock market will produce mediocre returns this year.

Grantham is the co-founder of GMO, the Boston-based investment firm. He has been bearish on the U.S. stock market for more than a decade and, so far at least, he's been wrong.

Yet Grantham commands a wide following on Wall Street. Though early in forecasting both the bursting of the internet bubble and the bear market during the global financial crisis, Grantham had the last laugh. Most stock-market analysts would disagree with Grantham's current bearishness, but worry that they dismiss his arguments at their peril.

Grantham's latest bearish case is that U.S. stocks could be sabotaged this year by an overheated IPO market. In a recent 2026 outlook event at GMO, Grantham said:

"My prediction is that 2026 is going to see a level of IPO excitement that we haven't seen in a while. My guess is that at least two of the private giants (OpenAI, Anthropic, SpaceX) will go public, and this is likely to put pressure on the U.S. market later in the year. ... Post-IPOs, initially, maybe the market rises, but longer term, as more stockholders are able to monetize, that will create a challenge for the U.S. market."

How much of a challenge for the stock market would such IPO "excitement" cause? GMO calculates that, historically, a 1% increase in the stock market's total market capitalization because of IPOs corresponds to a 7.5% decrease in the market's subsequent 12-month return.

Since the U.S. stock market's total market cap is currently around $50 trillion, a 1% increase would require an IPO from a company with a value of at least $500 billion. The AI companies Grantham mentions would come close to that threshold or exceed it, given their recent valuations in the private market.

Yet there's no guarantee that any of these IPOs will happen this year. With tech falling out of favor in recent weeks, AI companies have come under renewed scrutiny and there's now a less favorable environment in which to go public. Scott Galloway, clinical professor of marketing at New York University's Stern School of Business, recently said in a podcast entitled "Big Tech's AI Vibe Shift" that "OpenAI could get pulled" - meaning an IPO wouldn't happen.

If these megacap IPOs don't come to market, it would defuse Grantham's bearish prediction - and might even be bullish. Grantham still wouldn't turn bullish if that comes to pass, since he has a long list of other reasons why the U.S. stock market's longer-term prospects are very poor. Still, there is irony in Grantham, the inveterate bear, advancing an argument that could turn out to have bullish implications.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

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-Mark Hulbert

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02-17-26 1246ET