AI Fever Makes Global Tech Tycoons Even Richer, Here's the Evidence

The euphoria surrounding artificial intelligence (AI) is once again stirring debate on Wall Street. This time, the focus is not on technological sophistication, but on how conglomerates owning tech companies are capitalising on the surge in their share prices to raise funds and make acquisitions.

According to the Wall Street Journal, one of the most striking examples comes from Elon Musk. When investors pushed up his company’s valuation due to high expectations for AI, Musk used the expensive shares to strengthen his position in the industry.

‘What should you do if investors bid up your stock price on the assumption that you will be a winner in artificial intelligence, but your product is unpopular? Elon Musk has an answer: Use your expensive stock to buy another AI business,’ wrote James MackIntosh in the Wall Street Journal.

Through a $60 billion stock transaction to acquire Cursor, a popular programming assistant driven by the ‘vibe-coding’ trend, Musk gained a stronger foothold in the corporate AI market. The move is seen as a quick way to enter a segment his chatbot Grok had failed to penetrate.

However, behind the spectacular transaction, signals are emerging that investors should scrutinise. When share prices soar, companies have a significant incentive to issue new stock because the cost of funding becomes relatively cheap compared to using debt.

In theory, companies can finance expansion through debt or equity. When interest rates are low, debt is an attractive choice. Conversely, when stock valuations skyrocket, issuing new shares becomes a more profitable option.

The Wall Street Journal notes that a company’s decision to sell shares often reflects management’s view of market valuation. This concept aligns with legendary investor Benjamin Graham’s thinking on ‘Mr. Market’. Graham viewed Mr. Market as a bipolar figure, offering daily prices to investors—sometimes too high (you should sell) and sometimes too low (you should buy). According to Graham, when companies choose to issue shares, they are essentially taking advantage of a price they consider attractive to sell a portion of their ownership to investors.

This phenomenon occurred during two of the most speculative periods in modern capital market history: the dot-com bubble of the late 1990s and the SPAC frenzy following the Covid-19 pandemic. During those periods, companies flocked to conduct initial public offerings, issue new shares, and make acquisitions using stock as currency.

A similar pattern is now re-emerging. The value of mergers and acquisitions in the United States over the last four quarters has even surpassed previous periods. According to LSEG data cited by the Wall Street Journal, nearly half of M&A financing in the current quarter has come from share issuance.

This condition reflects high investor demand for AI-related stocks. At the same time, the supply of new shares is also increasing as companies seize the momentum to raise funds.

The Wall Street Journal suggests that corporate financing decisions can serve as a more honest indicator than some conventional valuation ratios. Metrics such as price-to-earnings, price-to-book value, and price-to-sales are often influenced by fluctuating growth assumptions.

For example, the forward price-to-earnings ratio for the S&P 500 currently stands slightly below 20 times. This figure is lower than the peak of 23 times in 2020 and 2025, and the record 24.5 times during the dot-com bubble. However, this decline is largely because analysts expect corporate earnings to grow rapidly in the future.

The primary concern, according to the Wall Street Journal, is not just high valuations but the flood of capital pouring into the AI sector. When a surge of fundraising occurs—whether through debt, equity, or both—three possibilities arise. First, the AI market may be large enough to absorb all the investment and still generate substantial profits. Second, the opportunity may be real, but intense competition could erode margins and destroy economic value.

The third and most feared scenario is that companies are raising and spending vast sums simply because shareholders support them, while the claims about AI are largely exaggerated.

This worry echoes the dot-com era, when companies raced to spend investor funds in pursuit of growth without clear business models. Ultimately, many failed to meet expectations and incinerated shareholder value.

‘The danger is that it will end up like the dot-com companies. Back then, as now, companies raced to spend as much money as possible as quickly as possible, and the ’burn rate’ was considered positive—until all the shareholders’ money simply vanished,’ MackIntosh said.