Potential Anthropic and OpenAI IPOs Could Spark Earlier Tax-Loss Selling

According to a Sunday report from Evercore ISI, fund managers bracing for a wave of mega-cap artificial intelligence initial public offerings could trigger an earlier round of tax-loss selling in underperforming blue-chip equities.

With AI pioneers Anthropic and OpenAI reportedly evaluating public listings in the near term, institutional investors are looking to free up room in their current equity holdings for these high-profile offerings.

Mega-Cap AI Listings Poised to Challenge Historic IPO Records

This capital-markets cycle follows the record-setting SpaceX public offering on June 12, which raised $75 billion at a $1.75 trillion valuation. While some observers likened the deal to the AOL/Time Warner merger in January 2000 and wondered if the market had peaked, Evercore ISI pushed back against the notion that the wider technology bull market is ending.

Instead, analysts compared SpaceX’s listing to Netscape’s 1995 IPO, judging it to be the starting point of a long-term productivity boom led by revolutionary technology.

At a time of greater AI influence, heightened volatility, stronger earnings, and more market upside, it should come as no surprise that top AI names like Anthropic and OpenAI are contemplating going public, Evercore ISI strategists wrote. They also noted that SpaceX’s record fundraising and valuation could easily be surpassed by the end of the year.

Evercore believes prospective IPOs from Anthropic and OpenAI could aim for valuations of $100 billion and $60 billion, respectively, potentially bringing annual U.S. IPO dollar volumes close to historic highs.

How Early Tax-Loss Selling Is Likely to Unfold

To fund their allocations for the coming mega-IPOs without adding leverage, portfolio managers are trimming their weaker holdings. Mutual funds usually do their tax-loss harvesting in October, but Evercore ISI expects fund managers to get a head start after Labor Day so they can raise cash.

To determine which equities may be especially exposed to selling before the IPOs, Evercore screened the Russell 3000 for companies with market caps above $5 billion, year-to-date losses exceeding 10%, shares within 20% of their 52-week lows, and negative EPS revisions over three months.

Tesla Inc is down 21.3% year-to-date, and its EPS estimate revisions are lower by 10.3% over three months.

International Business Machines Corp is down 20.7% this year, with EPS revisions cut 1.0% over three months.

American Express Co is down 11.8% year-to-date, and three-month EPS revisions are down 0.1%.

McDonald’s Corp is down 16.3% year-to-date, with EPS revisions off 0.6% over three months.

Lowe’s Companies Inc is down 15.2% year-to-date, and its three-month EPS revisions are 1.5% lower.

Lululemon Athletica Inc is down 51.6% on the year, and three-month EPS revisions are down 10.7%.

DraftKings Inc is down 30.3% year-to-date, while EPS revisions for the next three months are 50.1% lower.

The Trade Desk Inc is down 62.0% year-to-date, with three-month EPS revisions down 59.7%.

Fundamentals Supporting the Bull Market Look Sound

Even as tech indexes diverge—the Nasdaq 100 has been lagging while the S&P 500 and Dow Jones Industrial Average reached records in August—Evercore still holds a constructive view on the broader stock market.

The firm said the classic warning signs of a structural bull-market peak—an aggressive Federal Reserve rate-raising campaign, 10-year Treasury yields above 5%, a looming recession, or retail investors exhibiting extreme FOMO—are largely absent today.

In addition, the S&P 500 earnings surprise ratio is still near 23%, which runs counter to the typical pattern of downward revisions as the year goes on.