What's next for tech equity capital markets in a record year for mega-cap IPOs?

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Jack: Welcome to J.P. Morgan's Making Sense. My name's Jack Atherton. I sit in ECM Market Intelligence. We wanted to take some time today to talk about the tech capital markets landscape after what has been an incredibly busy year so far and to frame how we're thinking about the landscape as everyone comes back from the summer break. To help do that, I'm joined today by our Global Head of Tech ECM, Eddie Byun. Hi, Eddie, thanks so much for joining us.

Eddie: Hi, Jack, it's great to be here and thank you for having me.

Jack: So let's jump into it. As I said earlier, 2026 has been a record-breaking year for capital markets so far, and it's only August. To offer some highlights, global ECM volumes year-to-date are currently running at nearly $800 billion. That's up 75% year over year, with just over half of that coming from the US, which is up over 100%. We've seen the biggest IPO ever in SpaceX, the biggest IPO of a foreign issuer ever in SK Hynix, the biggest follow-on ever in Intel, and Alphabet announced a cumulative $90 billion raise back in June, all of which JPM advised on, which we're incredibly proud of. Global DCM has been a somewhat similar story, tracking up 22% year over year at about $3.4 trillion. So the market has digested a huge amount of issuance year-to-date. So two questions to throw at you, Eddie. Firstly, how do you think about ECM issuance volumes through the balance of the year?

Eddie: Of course, Jack, to state the obvious, it's been an incredibly active, historic year for ECM issuance, and I think we're very likely to see continued activity into year end that puts further distance between 2026 and other years in the market. Year to date in the US, we've seen 430 billion of equity issuance across IPOs, follow ons and equity linked offerings such as convertible and exchangeable bonds. Now, to put that into context, at this point last year, we were at less than half of that at about 200 billion. And already we are well on track for 2026 to exceed 2021, which was the previous high watermark for issuance at 458 billion. Now, undoubtedly, we've seen strong levels of activity across all products. But what really stands out in particular is the strength of the IPO market. Already in September, we've reached 162 billion in IPO proceeds for issuers, which is higher than the 152 billion we saw for the entirety of 2021. Now, while those numbers are truly remarkable, I think what's important is to also contextualize that increase across the growth of the overall US equity markets, which has also been substantial. Now, what I mean by that is in 2021, IPO issuance volumes were about 26 basis points of the overall US equity market cap at the time, which was about 60 trillion dollars. Now, since then, US equity markets have grown much larger and deeper with the market cap of about 80 trillion dollars today. So if we assume the same level of issuance on a relative basis, that suggests that the markets today can and should support IPO volumes well in excess of 200 billion dollars, which I think we are very likely to see into the close of the year. And I think lastly, what will really be interesting into year end is the shape of IPO activity that we see in addition to the mega IPOs and deals that have driven so much of the volume so far, I expect we'll see a relatively diverse mix of companies across both sectors and sizes, even within tech that come to the market over the next few months. And I think that will bode really well for broadening of activity into 2027. In terms of investors' willingness to engage on mega deals, I think they are very willing to do so. We've seen it in practice in terms of some of the deals that you've mentioned where investors have wanted to put significant amounts of capital to work. I think what's really driving that we should take a step back and also recognize that these are exceptional companies, generational companies that are coming to the market. They are creating new TAM or total addressable market opportunities and very often are going to be in a position to take an outsized position in those new markets. We are seeing companies that are disrupting existing industries and multiple industries. And we're seeing that in a lot of the growth numbers that are coming through. In many instances, these are highly scaled, highly profitable companies that are well-placed to continue their leadership position even in this age of AI build-out. And so when you take all of those things into consideration, I think it's no surprise that the market and many institutional investors want to support these companies and become shareholders.

Jack: And I think to dovetail on your point, in a world in which equity market skeptics constantly pointing to the lack of breadth across the market, I think now the top 10 companies within the S&P 500 make up nearly 40%. Investors want to see more multi-trillion dollar companies entering the market and they belong in the public sphere. And I think that's only a healthy shift for public markets going forward.

Eddie: Those are really good points, Jack. What have been some of the key debates and catalysts from here into year end that you've been hearing from investors?

Jack: Yeah, I'd say, so I always like to distill the market down to two or three top-down narratives. And we've bounced around a few topics this year, but right now it's very clearly AI and rates. And given the latter is increasingly important for the financing requirements of the former, they're clearly very linked. On AI, in order for investors to maintain confidence and conviction in the sustainability of current capex levels, a few things need to keep happening in my mind. And the things that are coming up most with investors in order are number one, AI lab, ARR, so annual recurring revenue trends need to maintain healthy levels of growth, which we've seen in exponential levels over the course of the last couple of years. And this is driven by a combo of token consumption, which in turn is tied to compute unlocks and token pricing. That pricing has clearly become a pretty big topic of debate right now. Secondly, it's GPU rental costs, which need to remain elevated. That's something that currently is acting as a major hyperscaler and NeoCloud tailwind. And number three, it's capital needs that need to be there to fund this build out. And this is where Jensen has been spending a huge amount of time, both in terms of deploying his own balance sheet at NVIDIA and opening the door to greater institutional capital streams coming into the market. AI infrastructure investment has been by far the number one market driver of upgrades this year, which has actually led to a meaningful D rating across the market. What I mean is that equities have got cheaper this year, despite global markets being near all time highs, as you said. So we do need this infrastructure investment to continue in order to maintain that recent equity performance that has come through. And then secondly, on rates, the long end of the curve is currently not far from two decade highs, and that's for a number of reasons. Firstly, it's record debt issuance levels. Secondly, it's AI inflation factors, specifically around components such as memory. Thirdly, it's extreme fiscal imbalances with US national debt topping $40 trillion. Fourthly, it's geopolitics and oil-driven inflation. And fifth, it's Fed communication credibility. I should add that we're currently recording this podcast at about 11 a.m. Eastern on Friday, the 28th of August. So just an hour or so after Walsh took to the podium at Jackson Hole. So things are clearly very much in flux around rates, but my base case is similar to that that I hear from investors, which is that it's very hard to imagine the yield curve meaningfully coming down, especially as we run into the midterms where we're likely to see a divided government on the other side. So Eddie, throwing it back to you, before we get onto some of the mega deals that have taken place this year, as you're engaging with tech clients globally, how do you see their willingness to engage with public markets versus staying private for longer or looking at alternative funding sources?

Eddie: Absolutely. Well, I think, put simply, the public markets are more attractive than ever before, and I think we are seeing a shift in many of our clients who are contemplating an IPO after being private for many years and multiple rounds. And I think there are a couple of key considerations that are really driving this. Firstly, is the simple fact that public markets have demonstrated significant demand and willingness to support high growth and emerging technology companies, particularly in the context of AI. Almost 60% of the equity issuance volumes you've seen this year have been in AI or AI adjacent sectors. And we also see this dynamic in the secondary markets and in the share price performance of many of these companies where public markets have simply been much faster than private markets and reflecting new developments, industry dynamics, growth opportunities. And that really allows both investors and issuers to capture some of that value. Second, what has been incredibly important is the sustained, efficient access to funding that the public markets provide. And as we discussed before, the market is larger and deeper than ever. And whether you are the likes of Alphabet or Intel, for whom we've done very large equity capital raisings, or a smaller but emerging growth company, the ability to issue equity in the public markets opportunistically and efficiently to fund growth or seize on CapEx opportunities has really been invaluable. What shouldn't be lost is also that the path to going public has gotten considerably easier over the past several years as well. And so now companies have a much easier on-ramp to becoming a public company in the form of testing the waters meetings, early engagement with investors, even in the lead up to the IPO, which makes price and valuation discovery that much easier. And I think the last thing that I would say, which has been supportive of more companies looking to access the IPO markets has been a number of structural factors that has been company friendly. And by that, I mean the emergence of the US retail market where we see a very strong bid from retail investors and those retail investors playing a larger role at IPOs, which will really be to the benefit of issuers. Continued innovations around indexation where indexes are moving up their index inclusion dates to support many of these companies earlier in their life as a public company. And then lastly is continued innovation around lockup structures, which make it easier for pre-IPO investors to get liquidity earlier through kind of phased lockup reductions, which has been to the benefit of the company as well. And so I think when you take all of these into context, we do have more clients than ever thinking about the IPO markets and with good reason.

Jack: And I think on the other side of that, to take the investor perspective, there's a phrase that I've heard used a few times that I really like, which is the investor willingness in public markets right now to buy the future has never been higher, whether that be AI or space or quantum or biotech or defense tech. So as a company making that leap to going public, there is a window of support right now, which may not last forever, but it's definitely there.

Eddie: Yeah, I think that's a really good point, Jack. I mean, and because if you think about it, in the private markets, many investors have had access to those opportunities. In the public markets, there's a relative scarcity of those types of growth opportunities. And I think what you're really seeing from this activity is public market investors really valuing the opportunity to invest in these types of growth stories. And so in some ways you're seeing an even stronger bid from the public side than perhaps on the private side of things.

Jack: And we've got to talk about the mega deals of the year. So JP Morgan was one of only two banks to act as glocos on all four of the mega deals this year. So that's SpaceX, SK Hynix, Alphabet and Intel. Eddie, from your perspective, were there any insights to those deals that might not have been obvious as an outsider?

Eddie: Yeah, absolutely, Jack. And I think what really comes to mind immediately is just the quantum and scale of capital that is available to these companies and how efficient that capital formation process has become in the public market context. Now, these are some of the largest offerings ever done in history. And I think the way that in which we were able to generate demand and engage with investors was very efficient and highly aligned with the kind of objectives of many of these companies, which were looking for highly tailored, quick processes that raised the quantum of capital that they would like. If I think about the past and, you know, for a long time, the largest US IPO ever in the market was Alibaba back in 2014 when we raised 25 billion for them. When we did that exercise, we literally had to scour the earth, mapping investor by investor, portfolio manager by portfolio manager, analyst by analyst to really get to that 25 billion in sizing. And that threshold really hadn't even been tested before. And now when you look at some of the deals that we've done this year, as you've mentioned, SpaceX, Hynix, Alphabet, Intel, many of these are even far larger than what Alibaba had done. We were able to see a demand response from the market in the first several days, often in the first day alone, that eclipsed what we were able to achieve in Alibaba. And I think all of this really goes to show you the progression and depth of the markets today and the willingness and efficiency of these markets and public market investors to support many of these best companies coming to market.

Eddie: So, Jack, if we turn it back to you for more on the context for some of these deals, what do you think the market or investors have taken away from the mega deals that have come to market this year?

Jack: Yeah, it's a good question. So starting with SpaceX, there's clearly a lot of technical factors at play here, whether it's retail or passive or lockups. But I think the biggest takeaway for this one is that SpaceX is very clearly a one of one company. And for every long only manager globally, whether you're a growth investor, a tech investor, a global generalist, this is going to be a meaningful portion of your benchmark. So every investor needs to have a view as difficult as it is to think about valuation for a company that is trying to colonize Mars, you need to have a view. And at the very least, if you have no view, this is a meaningful portion of your benchmark. For Hynix, it's a little bit different. This is one of three companies globally that are mobilizing the world around AI from a memory perspective. I think what this deal demonstrates is the power of the US market, the depth and liquidity of it, the fact that the US ADR can still trade at a 30% near 30% premium to the local line, demonstrates that in spades. And I wonder if that generates the thought process from other Asian companies that start to think about following suit.

Eddie: Thanks, Jack. That's super interesting. And I agree with all of your points there.

Jack: Also, I think that's a great place to wrap. Thank you everyone for joining. Eddie, thank you for the time and the conversation. This has been thoroughly interesting.

Eddie: Likewise, Jack. Thanks for having me.

Jack: And we wish everyone the best for the rest of the year. Thank you to our listeners for tuning in.

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