AI Investment Drives Record US Corporate Equity Issuance

A surge in artificial intelligence (AI) spending has led to a boom in corporate equity issuance in the US, according to Goldman Sachs. The investment bank notes that U.S. firms raised $252 billion through initial public offerings (IPOs), follow-on offerings, convertible securities, and SPACs in the second quarter of this year, surpassing the previous quarterly record of $234 billion set in 2021.

The increase in equity supply is more a return to normal levels than a market-threatening issuance boom, according to Goldman Sachs strategist Ben Snider. Despite substantial issuance volume, current equity offerings remain below historical averages relative to the overall size of the stock market.

AI-related companies account for approximately 40% of the total value of U.S. follow-on equity offerings this year, with technology, media, and telecommunications (TMT) firms making up 28% of the follow-on offering volume, surpassing their five-year average of 13%. Goldman Sachs estimates that hyperscale cloud computing companies will spend more than $1 trillion annually on capital expenditures over the next few years.

However, Goldman Sachs noted that the recently released financial reports of Amazon (AMZN.US), Google (GOOGL.US), Meta Platforms (META.US), Microsoft (MSFT.US), and Oracle (ORCL.US) also indicate that their revenues and operating cash flows still have room to grow. The higher returns generated by AI investments may enable these companies to fund additional capital expenditures through internal resources.

Debt financing is expected to shoulder the primary financing burden, with Goldman Sachs credit strategists projecting that hyperscale cloud computing companies will finance 35% of their capital expenditures through debt by 2027. This implies that global bond issuance could reach approximately $400 billion next year and remain at a similar level in the years ahead.