• European IPO window reopens with KNDS, Digi Spain
• Real assets offer chance to lean back into fundamentals

European equity capital markets continue to roll on in a pre-summer issuance wave focused on large follow-on transactions and convertible bond offerings.

The IPO market has now also re-opened with Franco-German tank maker KNDS and Digi Spain, both in the market exploring pre-summer listings, the latter issuing an intention to float today (29 June).

While these deals might lack the excitement of US mega offerings, the opportunity to judge a company based on fundamentals, not bullish sentiment, is likely to be welcomed by investors at a time of increasing nervousness over the long-term direction of tech.

The record IPO of SpaceX is the horn tip of this AI-fuelled bull market – one that has hit gargantuan levels this year. Fellow giants Anthropic and OpenAI have also confidentially filed for an IPO, although the latter is now reportedly postponing until at least 2027.

But there are fears that momentum in AI might slow at some point, driven by huge capex costs and possible shrinking revenue margins of premium hyperscalers, as customers scale back due to more expensive token-based pricing.

These growing nerves have seen the Nasdaq 100 trading around 5% below its last high, set on 2 June. Hardly disastrous given that was a record for the index, but the question remains as to whether this is just a pause for breath, or an initial sign the canary is wobbling on its perch.

SpaceX inflection

SpaceX’s IPO has served as a microcosm of the angst around this potential crisis, for some representing the boundless opportunities of an exciting economic future, for others the final proof of a market driven mad by AI excess.

In fact, digging deep into SpaceX’s S-1 financials, ECM Pulse could see a hugely profitable real asset space-tech business being dragged down by the cash furnace of xAI – with the whole group valued on equity projections more suited to the science fiction stylings of Star Trek than a traditional SEC filing.

But even with SpaceX’s solid revenue built on Starlink and its space technology business, its gargantuan valuation at IPO, and the eyewatering levels it rose to in the immediate wake of its stock market debut, for many revealed a market divorced from fundamentals.

In the days following its record IPO, SpaceX’s market cap shot higher, briefly reaching a USD 2.9tn high, 150x its reported USD 19.3bn trailing twelve-month (TTM) revenue at the end of 1Q.

Trading at a higher multiple than the world’s established equity giants is one thing, but SpaceX briefly traded at a greater market capitalisation than both Microsoft and Amazon, which had respective TTM sales of around USD 318bn and USD 743bn, respectively, at the end of the first quarter.

It’s all well and good to have commentators opining that this is a new world where discounted cash flow (DCF) models no longer apply and that ECM success is all about believing in stories that cannot be conveyed by traditional equity valuation metrics.

But even market participants channelling FOMO to participate in this gold rush are asking how sustainable it really is.

“How long does this cycle last, that’s a question all our investors are asking,” noted a banker. “You can’t model against normal parameters; it is going to take five to ten years at least for any of these AI benchmarks to play out.”

The market had been taken in by overexuberance around hot trends before, the banker noted, adding that the mantra “this time it’s different” should rightly prompt a level of buyside scepticism. It is a tune markets have played before – before engulfed in the deafening silence of a bear market reality check.

And if there is an AI bubble burst moment in US equities, as so many have cautioned, there is a long way for pre-revenue AI-linked IPO candidates to fall before they hit a fundamental value compelling enough for investors to want to catch the knife. Even in the case of something like SpaceX.

Real world assets gain appeal

At some point, investors need something tangible beyond the promises of unimaginable riches in a decade’s time.

One US-based investment banker noted that even stateside investors had started to push for more exposure to “real assets” on the back of some of the “crazy” numbers floating around AI and tech names.

He added that Hellman & Friedman had found huge demand for its IPO and subsequent sell downs in medical supply business Medline – noting that Blackstone could find similar appeal when it brings sandwich shop Jersey Mike’s to market in an expected IPO.

Many investors want exposure to “real assets” with revenues and balance sheets that they can grasp now and in the next two-to-three years, not 10-to-20.

Source: Dealogic

For all the buzz over European defence stocks and their meme-like growth up to this year, there has been something of a reality check of late. Familiar state procurement headaches have tempered well-founded projections that no-one is likelier to benefit from European rearmament than OEMs. If priced accommodatively, KNDS remains – at heart – a quality industrials business with a high-price product and a predictable order book.

Digi Spain is a good old-fashioned telco it isn’t going to transform humanity, but it might produce enough shareholder returns to make it an attractive investment.

Last week, there was a EUR 789.15m follow-on offering in German space technology business OHB, a pure-play way to invest in European satellite technology – think an admittedly smaller SpaceX without the xAI cash burn.

Playing to a more terrestrially focused investor base, there was also RWE’s EUR 4bn (USD 4.6bn) primary capital raise to fund the acquisition of a controlling stake in German transmission operator Amprion and support future investment in Germany’s power grid.

Assets like Blackstone-owned Hotel Investment Partners, RAC Group and Waterstones have all been mooted for possible IPOs in 2H in the post-summer window.

None of these assets generate the same level of feverish excitement as SpaceX, Anthropic or OpenAI, but they offer investors the opportunity to choose bullish confidence about the fundamental value of an investment, rather than hoping an ambitious equity story pays off.

The same is even true in private markets.

A European private equity investor noted that his firm was focusing on “real world, old economy assets” to provide downside protection against a turn in macro-sentiment including for the possibility of wider market volatility around tech and AI.

“We aren’t trying to pick AI winners and losers; we are trying to focus on businesses that could be the beneficiaries of AI but not dependent on the trend,” he noted.

These private investments in real-world high margin assets can go on to make for hugely successful public market investments. Just ask Swedish sponsor EQT following their exit of Galderma this year, or US-giant Apollo following its hugely successful disposal of Italian gaming business Lottomatica.

Both PE funds exited through an IPO, followed by a series of mammoth block trades.

Not every company is going to offer shareholders a bet on asteroid mining and orbital data centres – and in a healthy capital market, not every company should.

As the European IPO market creaks back open, some investors might secretly embrace the chance to return to their safe space of old-fashioned equity analysis, rather than trying to wrap their heads around an intangible future.