Following the entry of Space
There are mixed views on this in the market.
There are mixed predictions that the risk of a stock market recession will increase due to the inability to handle the overflowing volume, and that supply volume will gradually stabilize as investment demand for leading artificial intelligence (AI) stocks has been strong.
Bloomberg News reported on the 15th, “The U.S. stock market is currently entering a phase of the largest supply expansion since the dot-com bubble.”
According to JP Morgan Chase, it is predicted that over the next two years, the amount to be added to the U.S. stock market through IPOs, paid-in capital increases, and other stock sales will reach $1.5 trillion (approximately 2261 trillion won). This figure also reflects the decrease in volume due to share repurchases.
If this estimate becomes reality, the U.S. stock market will face the largest 'net supply' since the late 1990s.
Over the past 20 years, the U.S. stock market has been subject to a 'scarcity' phenomenon, in which stocks available for investors to buy have decreased due to massive stock buybacks and delisting. During this period, companies included in the Standard & Poor's (S&P) 500 index recovered a whopping $12 trillion (approximately KRW 182.4 trillion) from the market through share purchases.
The leading players in this supply expansion are innovative technology ‘star’ companies such as AI.
Elon Musk's aerospace and AI company SpaceX entered the stock market with a market capitalization exceeding $2 trillion as of the closing price on the first day of listing on the 12th. Antropic and OpenAI, two major AI model developers with a current corporate value approaching $1 trillion, are also pursuing an IPO.
Google, Metaplatforms (Meta), and Oracle plan to reduce share purchases and increase paid-in capital to cover massive AI investment funds.
◇ Flood of volume due to Big Tech’s ‘equity’?
In the past, these big techs mainly provided investment 'real ammunition' through in-house reserves or bond issuance, but this time, as they made massive investments in AI, Bloomberg pointed out that a phenomenon of 'equityization' is occurring, shifting the source of funding to the stock market.
There are many concerns in the market that increased supply will be a significant burden on the stock market.
In the past, U.S. listed companies have acted as a 'support' for stock price increases by actively purchasing back shares to return shareholders, but as this dynamic changes, shocks may occur.
The ‘lack of demand’, in which the stock market cannot properly absorb the additional volume pouring in, is a much bigger problem.
There are also pessimistic observations that the U.S. stock market, which has been supported so far by the buying trend of index funds and the enthusiasm of individual investors, may suddenly hit growth limits and falter.
In an interview with Bloomberg, Adrian Helfert, fund manager at investment management company Westwood, said, "It is worth wondering why companies are selling stocks now," and pointed out, "It remains to be seen whether they will exhaust the fruits of their growth in the over-the-counter market and go public."
The fact that the three major IPO 'big fish' stocks, such as Space
SpaceX's IPO volume does not exceed 5%. This is significantly below the typical public offering volume of 15-20%. OpenAI and Entropic also plan to adopt a similar strategy.
When the quantity tied up in protective custody is released into the market in earnest, the supply pressure is expected to increase rapidly.
According to an estimate by market analyst Ned Davis, the corporate value of these three companies amounts to $3 trillion, and even if only a portion of this is released to the public offering market, it is predicted that it will completely offset the effect of one year's worth of stock purchases by S&P 500 companies.
Noah Weisberger, a strategist at BCA Research, said that in the past, when a large IPO was carried out, the risk of stock market growth stagnating or declining increased. He warned, "The fact that a large number of very large IPOs are waiting is itself a cause for concern in the market, and could act as a significant headwind for the stock market as a whole."
◇ Is standby demand solid?
There are many counterarguments.
It is pointed out that it is excessive concern to see this phase as an opportunity for upheaval in the stock market, as the increase in volume is only a 'risk' (risk factor) in the market and is supported by the fundamentals (performance) of companies.
Inigo Fraser, co-head of the institutional solutions division at asset management company AllianceBernstein, said, “It is correct to view this change as a time when investors must realistically recognize the level of risk they will have to endure in the future,” adding, “It means that the threshold for determining the success of the stock market boom has been raised.”
There are many analyzes that show that initially pent-up demand for products such as SpaceX, which is attracting attention in the market, is very high.
The companies in question have previously raised their prices significantly in the unlisted market, and the waiting demand from public offering investors who were unable to buy stocks has been substantially created, which serves as a support for volume digestion.
Chan Ahn, founder of private equity fund Tessera, said, “It is true that there is currently a huge amount of investment demand waiting,” and pointed out, “However, this demand cannot be seen as a signal proving the health of the overall market, and is read as a result of the scarcity of investment accessibility that is currently tightly tied up.”
It is also noteworthy that stock suppliers are targeting individual investors, whose proportion has been increasing, as their main target group.
According to an analysis by Bloomberg Intelligence, individual investors account for about one-fifth of the total trading volume in the U.S. stock market, doubling compared to 2010.
SpaceX recently allocated an unusually high 20% of its IPO volume to individual investors.
There are mixed opinions in the industry, with some saying that companies are taking advantage of the individual investment craze at the right time, and others criticizing that they are making easy sales to ants who are much easier to persuade than institutional investors such as investment banks.
Bloomberg said that historically, large-scale stock issuances have followed major investment booms. Astronomical amounts of funds were needed to build railroads, canals, and communication networks, and companies aggressively distributed stocks to expand capital.
Robert Buckland, senior advisor at market advisory firm 'Engin AI & Investa', diagnosed that the current AI craze conforms to this historical pattern, but said, "The current bull market has so far held firm despite inflation, war, and credit crunch, and this flood of stock issuances should clearly be seen as a signal of concern in this trend."
