Market context
Goldman Sachs strategists report that corporate demand for U.S. stocks should exceed new supply this year, even as follow-on equity issuance has climbed to its highest level so far in the calendar year since 2021. The team, led by Ben Snider, characterizes the rise in follow-on offerings as a normalization of activity rather than an excessive surge.
Issuance data
Through July, U.S. companies have raised $105 billion from follow-on offerings year-to-date. Goldman also highlights that total equity issuance - a category that includes IPOs, follow-ons, convertible securities and SPACs - reached $252 billion in the second quarter, setting a new quarterly record and eclipsing the prior high of $234 billion recorded in the first quarter of 2021.
Despite these headline numbers, the strategists note that both the count of offerings and the level of issuance when measured against equity market capitalization remain below long-term averages. Activity has been concentrated in a relatively small number of large transactions.
AI investment as a driver
A central factor behind the increase in equity issuance is financing for artificial intelligence-related investment. Goldman says AI-linked transactions have accounted for about 40% of U.S. follow-on equity volume this year, and the strategists expect that proportion to continue rising.
On the capital needs projection, consensus estimates show hyperscaler capital expenditures of $1.1 trillion that would exceed operating cash flow by $150 billion in 2027, before turning free-cash-flow positive in 2028. The strategists caution that while recent earnings could lift revenue estimates for hyperscalers, many investors continue to expect capex will come in well above consensus forecasts.
How capex may be financed
Goldman’s credit strategists anticipate that debt markets will absorb the largest share of AI-related financing. They project hyperscalers will fund 35% of 2027 capex with debt, which Goldman equates to roughly $400 billion in global issuance.
Equity capital is expected to remain part of the funding mix. According to the strategists, equity issuance can help companies execute multi-year investment plans while maintaining balance sheet quality and avoiding the limits of debt market capacity.
Issuance timing and market dynamics
Future issuance volumes, Goldman says, will depend on market appetite. Historically, follow-on offerings tend to increase when equity markets are strong and when issuers trade at a premium to the broader market - a pattern that has been observed in the current period. The bank also reports no abnormal signs of market indigestion in offering discounts or in post-offering share performance.
Demand-side support from buybacks
On the demand front, Goldman points to S&P 500 buyback activity that tracked at an 11% year-over-year increase in the second quarter. New share repurchase authorizations have reached nearly $1 trillion year-to-date, a record level for new authorizations over the same span.
Goldman estimates that $1.4 trillion in share repurchases this year would offset about $700 billion in primary equity issuance as well as potential supply from expiring post-IPO lockups. That dynamic suggests buybacks alone could more than counterbalance primary issuance, even as the overall supply-demand balance becomes somewhat less favorable for equity holders.
Takeaway
Goldman’s analysis portrays a market where increased equity issuance - driven largely by AI-related financing needs - is being accommodated by a combination of debt financing and robust buyback activity. The bank’s view is that demand, led by repurchases, should outstrip supply this year while issuance trends return toward historical norms rather than representing a boom.
Note: The figures and projections cited reflect Goldman Sachs' current strategic note and consensus estimates referenced by the bank.