SocGen Strategist: AI Capex Cycle Represents Healthy Financing; Absence of M&A Rules Out Cycle Peak
N.R. Finch
SocGen US equity strategy head Manish Kabra argues the current expansion in equity supply is healthy capital formation, not a topping signal — the key evidence is that large-scale M&A, historically the real marker of bull-market endings, remains absent.
Share counts are rising — how is that different from the last decade?
Since 2023, total S&P 500 shares outstanding have risen roughly 2.6%, reversing a ~9% shrinkage during the 2010s.
This means → the old playbook — companies buying back stock to boost per-share earnings — is fading. Buyback growth is slowing; primary and secondary issuance is picking up. Financial engineering is losing its grip on valuations.
In plain terms = companies used to spend cash making their stock *look* better; now more of them are issuing new shares to fund AI investment. The money is flowing somewhere else.
With so much new issuance, is the bull market near its end?
Kabra says not yet. Current annual share-count growth sits at roughly 1%, well below the ~3% annual pace during the 1990s TMT build-out.
This means → the 1990s saw far heavier issuance, yet equities kept rallying for years. High issuance alone does not equal a top.
He characterises that era as "strong capital formation driven by investor demand" — not a market overheating to exhaustion.
How did the 1990s bull market actually end?
In Kabra's framework, the real turning point came when large-scale M&A activity surged — the defining event was the AOL–Time Warner merger in early 2000.
This reflects a pattern: market tops have historically coincided with M&A booms, because those booms signal extreme late-cycle confidence — companies are willing to use sky-high stock as acquisition currency, a sign that conviction has stretched to its limit.
In plain terms = issuing stock says "I need money to build things"; an M&A frenzy says "my stock is so expensive I can buy anything" — only the latter is a danger signal.
Is that M&A signal showing up now?
No. IPO activity has recovered from its post-2022 trough, but M&A volumes remain subdued — no comparable large-scale or concentrated deals have appeared.
Both issuance volumes and deal sizes sit well below the absolute peaks and market-cap-relative levels of prior cycles.
This means → Kabra's conclusion is that the recent pick-up in capital-markets activity looks more like a normal reopening recovery than a late-cycle overheat — the expansion phase is still running, and a "major top" signal has not arrived.
Content is for reference only, not financial advice.