Transcription
Hey, bow tie nation. Joseph Hog with your weekly stock market update, coming to you Sunday at noon before the week starts, with the stocks to watch and the stock market news you need to see.
And nation, the record-breaking SpaceX IPO is coming this week, followed closely by OpenAI and Anthropic in a few months. But with stocks already teetering, I found proof that these could be the match that ignites the next stock market crash. It's not going to happen overnight, but it is coming, and you need to be ready. I'm going to show you why. It's only a matter of time, and how I'm preparing my portfolio, along with important updates to cybersecurity stocks, Broadcom (ticker AVGO), and Oracle (OCL) ahead of its earnings this week.
First, though, back to those mega IPOs coming and the potential for a stock market crash. Because the SpaceX IPO is this Friday, and it will instantly be the largest in history. A massive $1.8 trillion valuation and raising $75 billion from investors. That alone is set to be three times larger than the previous IPO record set by Alibaba in 2014. And it's set to be followed by Anthropic and OpenAI, both racing to IPO over the next few months. And that is when we start to see the cracks that become a crash.
But let's be clear, folks. I'm not saying don't buy SpaceX, or that the stock market crash is happening this month. SpaceX is launching at a $1.8 trillion valuation. Morningstar has said it's worth less than half that, and there's a chance we do see the stock fall after the first day's excitement. That's just the reality for most IPOs.
But the fact that SpaceX has already won its inclusion into the biggest index groups in the market, the Russell 1000, the NASDAQ 100, and eventually into the S&P 500 index. That means ETFs tracking those indexes will be buying a massive amount of these shares, upwards of half the shares available. So, that's going to be a giant demand for the stock and could support that price higher.
Like I detailed in last week's update, though, I'm not calling for a market crash overnight either. This is something that's going to work out over the next few months, but it will happen, and nobody is talking about it yet. You need to be ready for it. So, I want to explain what's about to happen, why, and then two must-know rules you can start building into your portfolio so you don't get caught in that next 50% crash.
And nation, this starts with those giant record-breaking IPOs. Anthropic filed confidentially last week for its IPO. That means it doesn't have to release financials until just before the issue date. SpaceX did this a couple of months ago and just last week released its documents and a target of $1.8 trillion valuation. OpenAI hasn't filed yet, but it and Anthropic are in a race to be next. Both have valued near a trillion in a recent funding round, so would likely want to IPO between that $1.5 and $2 trillion mark. And that makes this estimate for $200 billion in raised capital for these IPOs actually seem conservative, but would still dwarf any other year in history.
That's the amount of new investor money into these shares. And even that boom year in 2021, when interest rates were zero and pandemic trillions were sloshing around through the economy, that doesn't even come close to what we're talking about here. That is $200 billion plus in new investment. That has to come from somewhere. It could come from investors selling other stocks. But are you really going to sell your shares of Micron, that had rocketed 900% over the last year? Or even AI kingmaker Nvidia, which is lagging but still up 54% after an 1,000% 5-year return? Nobody is rushing to sell those stocks because investors have found an easier solution.
And it's where this all triggers the biggest stock crash in a decade. Federal regulator FINRA reported margin debt reached a record of $1.3 trillion in April. That's the purple line in the chart here against the blue line, which is the S&P 500 index. Most investing platforms will let you borrow up to 50% of your account value to invest extra money. So, someone with $100 in their account can borrow another $50 and invest $150 in stocks.
Now, that works out great when stocks are going up. Stocks in the S&P 500 have returned 27% over the last year. If you had invested that $150 with the $50 of borrowed money, you'd have made $40, which is actually a 40% return on your $100 starting value. With that, we see margin leverages up your returns to the upside. The problem is, margin can also make a down day go from bad to apocalyptic in a heartbeat.
And that's where these three mega IPOs start a crash. From October, stocks in the S&P 500 lost almost 8%, while Nvidia gave back 20%, and stocks in the software industry crashed 32% through March. If you had that same 50% margin invested in Nvidia, you wouldn't just be down 20%, you would have been down 30% in your $100 portfolio. So, that same borrowed money, that margin debt that can boost your returns higher, can also amplify your losses. And if it gets too bad, you have to either add money to your account, or you're forced to sell stocks. That is why you see these peaks in margin debt crumble when stocks crash.
Investors get euphoric when stocks are rising, seeing that opportunity to boost their returns with the borrowed money, and that margin debt explodes higher. At the slightest cracks in the market, though, when stocks sell off five or 10%, it becomes a vicious cycle that forces the market lower. That borrowed money amplifies the market losses, forcing investors to sell some of their stocks to cover that borrowed money, which then forces stock prices even lower, still creates more forced selling for other investors.
And we've seen that amount of borrowed money explode over the last year. Margin debt has jumped 53% in the last year alone, from investors borrowing $848 billion in March 2025 to a new record at $1.3 trillion this year. And this chart shows just how extreme that's become, with the purple line, the increase in margin debt versus growth in the S&P 500 in green. And what's striking here is that borrowed money has gone exponential, basically going straight up in the last year.
And that brings us back to this massive increase in IPO funding from SpaceX, Anthropic, and OpenAI this year, and how it triggers that next stock crash. Yes, some of that $200 billion in new investment into these three IPOs will come from investors selling other stocks, but I doubt very much. Not when they've got this other option available. That means investors are just going to lean more heavily into that borrowed money.
And understand that $1.3 trillion record margin debt is old data. Stocks in the S&P 500 are up 6%, and the index of AI stocks is up 26% since these numbers were reported. So, investors have had even more incentive to borrow and invest more. When we see the May margin debt later this month, I'm guessing it's going to be closer to $1.4 trillion. And then imagine layering on another $150 billion or more through these three IPOs just over the next few months. Investors will be in debt up to their eyeballs.
And while Nvidia, a great company that's actually one of the safer AI names, has always bounced higher, it's had some tragic drops just in the last year. If you were maxed out at that 50% borrowed money to invest in that November sell-off, you'd be looking at a 27% loss, forced to sell shares at that low, and then lock in those losses.
Now, again, none of this means that stocks are crashing overnight, but we're already at that record in borrowed investor money, and these three IPOs are going to put that into overdrive. When that happens, stock sell-offs are going to get more extreme, and it's only a matter of time before something does break.
As I talked about in our last week's update video, that doesn't mean I'm selling all my stocks, but it does have two very big implications for your money. First is to start rebalancing some of your money into those safer stocks and the sectors. Right now, we always want just that one more year of investing in those high-return growth stocks before we add those safety sectors. Then a crash comes, and half of your portfolio is wiped out. I'm still investing in AI stocks and these other growth names, but I'm limiting it to no more than 40% or 50% of my portfolio, spreading my money out into safer sectors like stocks in the consumer staples (that's the XLP), real estate (that's the XLRE), healthcare (the XLV), and then even bonds in the Vanguard Short-Term Bond ETF (that's the ticker BSV).
Investing part of your money in these sector funds and the bonds won't make you rich, but should produce a respectable 10% on that part of your money. It is going to fall far less if those tech stocks crash. In the last market crash, when the tech-heavy NASDAQ lost 32% to end 2022, healthcare stocks in the XLV actually gained 6%, and consumer staples in the XLP returned 1%, while bonds in that BSV, hit on those rising interest rates, still saved your money with only a 7% loss. Now, again, we're not selling all of your AI or your tech stocks, but just shifting some of that weight back into these safer stocks over the next few months, and not waiting for just another year.
But the second rule here is a big one. This is no margin investing. Now, I know it's worked great over the last year, borrowing that money to leverage your returns even higher, but investors already owe a record amount of debt, are going to be piling on hundreds of billions of dollars on top of that. It is only a matter of time before this whole house of cards comes crashing down.
Now, I'm going to show you the stocks I'm watching this week, including an update to our cybersecurity stocks. But first, if you haven't yet, please use the special invite link below to join me on the Blossom Investing app and see every stock in my portfolio. It's totally free to use and it helps support this channel, so I appreciate that. Plus, you'll also be able to see what over 500,000 investors are talking about in the social feed. So, look for that invite link below, or just scan the QR code here.
On to the stocks I'm watching this week. Cybersecurity stocks got crushed last week on earnings that beat expectations but just weren't good enough, with Palo Alto Networks (P&W) down 5% on the week, followed by Zscaler, Okta, and Crowdstrike all down about 10%. And then Fortinet able to hold on with a 2% gain. Now, a lot of this was just give-back from a giant run over the last month, with most of these names up 50% and 60%, as investors realize what I've been talking about on the channel. AI is going to be a demand boom for cybersecurity rather than that revenue killer. A case in point here is in its earnings call, the Palo Alto CEO said his company has answered 1,200 customer calls in recent weeks as businesses try to get ahead of those AI risks. And to put that into perspective, the company did just 1,200 meetings all of last year, and it's done 800 in just the last 12 weeks. I'm still up an average 38% across my five stocks in the cybersecurity space, including CrowdStrike (CRWD), Palo Alto Networks (P&W), Fortinet (FTNT), Zscaler (ZS), and Okta (OKTA). And I'm looking to add more before what could be a very good set of next quarter's earnings reports.
Broadcom (ticker AVGO) plunged 10% on its earnings report last week and started that cascade of losses across AI chip makers. The company reported very strong 48% growth in revenue and beat earnings expectations, but it did miss a sales forecast marginally. Now, the bigger story though was that the company held steady on its $100 billion full-year revenue forecast. That would be a giant 56% increase from last year's sales, but just not good enough for a market that wants that continuous upgrades each quarter. The shares are still up 744% over the last five years, at 54% of that just in the last year alone, and remains one of my favorite AI stocks. Beyond this year's growth, revenue is seen up another 58% next year to $163 billion. So, as long as that AI buildout theme continues, this company is going to ride it higher. On this year's expected $103 billion in sales, Friday's close around a $1.9 trillion market cap puts the stock at a price of 18 times its sales. Now, that is not super cheap territory, but it's also a lot lower than where it's traded at recently. And if it can hit that $163 billion target next year, you're going to wish you had bought more of these shares.
Oracle (ticker OCL) lost 5% last week ahead of its earnings report this Wednesday. Though, the stock has lagged some of those other hot AI names, with shares up just 14% this year. Now, it's going to be one of the last big earnings chances to lift AI stocks, with the company expected to report 20% sales growth and 15% earnings growth last quarter. Like most of these reports, though, the market is going to be more interested to see if management is going to raise its expectations for around $67 billion in those full-year sales or the $19 billion estimate for the current quarter. Oracle does have a decent record for managing those expectations and then getting a pop on its earnings day, with the stock up in three of the last four reports, including that massive 36% surge on the first quarter report last year. The options market is forecasting an 11% move on the report, higher or lower, but it's going to hang on that updated revenue forecast.
And space stocks fell early last week after an explosion of a Blue Origin launch brought those risks back home to investors, with Planet Labs (ticker PL) down 29% on the week, followed by Intuitive Machines (LUNR) down 27%, Rocket Lab (RKLB) down 20%, and AST SpaceMobile (ticker AST) 11% lower on the week. And while they clawed back some of that drop, they sold off again Friday. And this week could see more selling as those space-hungry investors build cash for the SpaceX IPO. I think if people are selling stocks, this is where it's going to come out of to invest in SpaceX. That said, I do like Rocket Lab's here ahead of its first medium-lift rocket launch later this year. The larger payload at 13 tons is going to help it close that size and the efficiency gap with SpaceX. Elon Musk's Falcon Heavy delivery vehicle can lift almost 64 tons at a cost of $1,500 per kilogram of cargo, with Rocket Lab's Neutron rocket expected to get its own cost down to $4,000 per kilogram. Now, that still doesn't make it as cheap, but Rocket Lab's smaller rockets also allow more flexibility in their scheduling and customers that just don't want to share those launches. Rocket Lab has 70 launches on backlog, a $2.2 billion backlog of revenue, with sales growing at a solid 51% pace per year. Now, shares are not cheap here at 77 times this year's revenue, but that kind of growth is there, and the space race is just getting started.
Updating our market outlook, we will see the Consumer Price Index (the CPI), measure of inflation, on Wednesday, with the market expecting prices increased 4.2% from a year ago. That's slightly higher than the 3.8% pace of inflation reported last month. Against that, there is some room for inflation to come in below those forecasts on gas prices that were lower in May. Now, at a national average of $4.24 a gallon versus $4.47 a month ago, and down about 10 cents a gallon in most states. The problem is that a lot of this was on hopes for those negotiations in Iran and opening of the Strait of Hormuz, which have gone absolutely nowhere. So, don't expect gas prices to come down much further until real progress is made.
But even if inflation comes in a little under forecast, say at a 4% pace, it's still way above the Fed's target of 2% annual price increases. And Friday's blowout jobs report showed a strong unemployment picture. That's taken any hope for rate cuts off the table and lifted fears of those rate increases. I don't think that's going to happen, but rates are likely to stay higher for longer, and it's just going to be one more factor weighing on stock prices through the summer months at least. That's a big reason why I warned in our last week's update video that investors need to start rebalancing into safety against any stock market sell-off. And this wave of IPO stocks coming just adds to that need.
Join me on the Blossom Investing app free with the special invite link in the description. Don't forget to join the Let's Talk Money community by tapping that subscribe button and clicking the bell notification.