Equity Funding Squeeze Driven By AI Rally, SpaceX IPO Stretches Banks

US equity financing costs are spiking as the AI rally, leveraged ETF expansion, and SpaceX's $75 billion IPO simultaneously strain Wall Street's balance sheet capacity. Bloomberg reports the squeeze is catching banks off-guard, with multiple structural forces converging to tighten funding availability for stock positions.

The AI-driven market surge has increased demand for margin financing as investors chase momentum in tech names. Simultaneously, leveraged ETFs—which require daily rebalancing and amplified collateral—have grown rapidly, compounding balance sheet pressures. SpaceX's upcoming public listing adds a third stress point, requiring banks to allocate significant capital for underwriting and initial share distribution.

The combination creates a structural bottleneck: banks face regulatory limits on balance sheet expansion, forcing them to ration equity financing even as demand accelerates. Higher funding costs typically translate to wider bid-ask spreads and reduced liquidity during volatile sessions.