Rising Equity Supply Could Break the AI Bubble
GMO argues that rising equity supply, rather than weaker AI demand, could trigger a break in the AI bubble. The firm highlights the release of roughly $2 trillion in SpaceX shares from lockup restrictions on 12 June 2027, alongside potential IPOs from Anthropic and OpenAI. Hyperscalers are also increasing share issuance to fund heavy AI infrastructure spending.
GMO estimates that US equity supply could shift from shrinking by about 1% a year, due to buybacks, to expanding by nearly 5%. Historical data cited in the report suggests that a 1% increase in equity supply has been associated with an approximately 4% decline in market value over the following year, after adjusting for valuations.
The report says passive funds, benchmark constraints and limited cross-asset allocation have reduced the number of investors willing to absorb new shares. GMO estimates that the resulting equity supply headwind could reduce returns by about 20% relative to normal over the next 12–18 months.
The firm compares the setup with the 2000 internet bubble, when heavy internet-related share issuance helped pressure markets before weak industry fundamentals became widely recognised. GMO warns that expensive valuations, high profit expectations and continued AI investment could amplify any downturn. The analysis is a market risk assessment, not a prediction of an inevitable crash.
Bearish
The article is directly focused on equities rather than cryptocurrencies, but its implications are relevant to crypto traders because digital assets often behave as high-beta risk assets during liquidity shocks. A sharp increase in equity issuance could force investors to sell liquid holdings to fund purchases of newly issued shares. If valuations fall, leveraged funds may reduce exposure across technology stocks, AI-related assets and cryptocurrencies at the same time.
The short-term risk is a rise in volatility and correlation between crypto and US growth equities. Bitcoin and major altcoins could face selling pressure if traders respond to weaker equity indices, tighter financial conditions or falling risk appetite. AI-linked tokens and other speculative sectors would be particularly vulnerable. The impact may be limited if new share issuance is absorbed smoothly, if institutional demand remains strong, or if monetary policy becomes more supportive.
Over the longer term, the report’s comparison with the 2000 internet bubble suggests a possible two-stage reaction: equity supply may pressure prices first, while disappointing returns on AI infrastructure investment could deepen the decline later. Similar episodes, including the dot-com bust and the 2022 tightening cycle, showed that high-growth assets can reprice rapidly when liquidity weakens. Crypto traders should monitor Nasdaq performance, IPO activity, credit spreads, leverage, stablecoin liquidity and correlations with technology stocks. The bearish classification reflects the potential for broader risk-off contagion, not a direct fundamental threat to any specific cryptocurrency.