SpaceX and SK hynix Among Companies Selling Shares: A Sign the Bull Market Is Nearing Its End?

[Financial News] SpaceX's $75 billion initial public offering, Alphabet Inc.'s $85 billion fundraising, and SK hynix's issuance of more than $26 billion in American Depositary Receipts (ADR).As major global companies raise record amounts of money in the stock market, concerns are growing that the long-running bull market may be entering its final stage.
In an article published on the 14th local time under the headline "Mega share sales could overwhelm the bull market," The Wall Street Journal (WSJ) reported that competition among major global companies to raise capital could threaten the long-running rally.
The WSJ analysis argues that when companies believe their share prices have risen enough to sell stock at attractive prices, they pursue IPOs or equity offerings. A surge in large share issuances at once is therefore interpreted as a "late-stage bull market signal," suggesting investor sentiment may be nearing a peak.
There is also strong pushback. Some argue that, given the unprecedented level of capital spending centered on the artificial intelligence (AI) industry, recent fundraising cannot simply be read as a sign of market overheating or peak selling.
Wall Street and academia remain split over whether companies are selling shares because valuations are high or because they need capital for real growth.

According to the WSJ, global companies have issued more than $344.7 billion in new shares so far this year. That already exceeds the annual issuance totals for each of the past four years. SpaceX's IPO, Alphabet Inc.'s share issuance, and SK hynix's ADR offering are among the most notable examples.
The problem is that while the supply of shares entering the market is surging, companies' share buybacks are slowing. Buybacks reduce the number of shares outstanding and help support stock prices, while new share issuance increases the amount of stock the market must absorb.
Some forecasts suggest that net share issuance, calculated by subtracting buybacks from new share sales, could reach $500 billion. That would reverse a structure of years of net share repurchases into a large net supply, raising the risk that investment capital may not be able to absorb the new flood of shares.
Even if companies use the proceeds from share sales to invest in factories and data centers, the stock market may face immediate pressure. Existing shareholders could see their stakes diluted, while limited investment capital is spread across new listings and equity offerings.

The WSJ's view that large share issuance is a sign of the late stage of a bull market appears to be based on the corporate finance theory known as "market timing."
In a 2002 paper titled "Market Timing and Capital Structure," Malcolm Baker of Harvard University and Jeffrey Wurgler of NYU argued that companies tend to issue shares when they believe their stock is overvalued and buy them back when they believe they are undervalued.
The paper said that in a survey of corporate executives, about two-thirds of companies considering share issuance cited the degree of overvaluation or undervaluation of their stock as an important factor in their decision.
It also found that companies that issued shares tended to post relatively weak long-term returns, while companies that bought back shares tended to deliver stronger long-term returns. The authors concluded that, on average, management had been successful in timing financing decisions to take advantage of market conditions.
Under this logic, periods of surging IPOs and equity offerings are times when executives judge current share prices to be favorable for fundraising. If companies are confident that share prices will rise further, there is little reason to sell large stakes now.
In the stock market, this is often described as a time to be cautious when companies want to sell shares rather than buy them, or as insiders passing stock to retail investors at the top.
In fact, IPO waves have typically appeared after sharp stock price gains.
In a 2003 study, Lubos Pastor of the University of Chicago and Pietro Veronesi of Northwestern University found that high market returns tend to precede IPO waves, while market returns tend to weaken after IPO activity becomes concentrated.
During the dot-com bubble of 1999-2000 and the SPAC boom of 2020-2021, companies also rushed to list and issue shares, only for the market to correct sharply afterward. For that reason, a booming issuance market is often seen as a classic sign of overheating that repeatedly appears in the late stage of a bull market.

There are also studies pointing in the opposite direction. They argue that corporate share issuance should not be interpreted immediately as a sign of a market top.
In 2010, Harry DeAngelo and Linda DeAngelo of USC, along with Rene Stulz of The Ohio State University, analyzed follow-on share offerings by already listed companies.
The researchers concluded that both market timing and a company's stage of growth affect issuance decisions, but that short-term cash needs are in fact the more important motive.
Among the companies studied, 62.6% were projected to run out of cash the following year if they had not raised funds through equity offerings. Another 81.1% were expected to end up with cash balances below normal levels. That suggests the need to secure cash to keep operations running or fund investment was greater than the desire to sell shares at a high price.
Not every overvalued company chose to raise capital, either. Most firms with high market values and sharply risen stock prices did not actually issue shares. The researchers said this shows the limits of explaining equity offerings solely through market timing.
It is also important to consider that companies in a growth phase need large amounts of investment capital. The probability of an equity offering was 9% for companies in their first year after listing, compared with 2.5% for companies that had been listed for more than 20 years. The analysis suggests that a company's growth stage and funding needs may have a greater impact on the likelihood of an equity offering than whether the market is overvalued.

The debate over recent share issuance is ultimately tied to the enormous funding needs of the AI industry.
As investment requirements for AI model development, data center construction, and advanced semiconductor procurement surge, technology companies are finding it increasingly difficult to finance spending with operating cash alone. Some forecasts say annual capital expenditures by major AI and cloud companies could soon exceed $1 trillion.
Alphabet Inc. and semiconductor companies are also issuing both shares and bonds, reflecting this investment demand. From a corporate perspective, raising funds when share prices have risen sharply allows companies to secure the same amount of capital while issuing fewer shares, reducing dilution for existing shareholders.
In the market, this is seen as a combination of market timing and real investment demand. Companies are taking advantage of higher share prices to raise money, while also securing the ammunition needed for AI investment.
As long as solid corporate earnings and economic growth continue, and AI investment leads to higher productivity and new profits, the market may be able to absorb the new share supply and extend the bull run.
Domestic experts offered a similar view.
Park Joo-geun, head of Leaders Index, pointed to the circular financing among U.S. big tech companies. Circular financing refers to a structure in which big tech firms invest in AI startups and the money then flows back through cloud services or hardware purchases. In other words, it is a system in which investment capital is converted into revenue.
Park said, "Circular financing, where big tech companies lend to or invest in one another, is becoming visible. They have essentially pulled in everything they can."
Google last year signed a contract to supply Anthropic with Tensor Processing Units (TPU) over the long term, and in April this year it invested $10 billion in Anthropic. NVIDIA is also signing similar deals with OpenAI and others.
He added that there is no need to be overly pessimistic.
Park said, "At least for next year, the companies have already committed to $1 trillion in investment. The issue is what happens after 2028, and whether the bubble bursts then," adding, "In the meantime, big tech companies are expanding their scalability and producing results through Physical AI development, so it will not be easy for a bubble to form."
y27k@fnnews.com Seo Yoon-kyung Reporter