Lately, people keep asking me whether a company's announcement of a capital increase will cause its stock price to rise. To be honest, there’s no absolute answer to this question, but I can explain it clearly with real-life examples.

Let me start with two classic cases. In 2020, Tesla announced a new stock issuance of $2.75 billion, priced at $767. per share. Logically, this would dilute existing shareholders’ equity, and the stock price should fall. But what happened? At that time, market confidence in Tesla was sky-high, and investors believed this capital would help expand factories and develop new technologies, so the stock price actually went up. This is a typical example of “a capital increase stock will rise.”

Next, look at TSMC’s capital increase at the end of 2021. The same logic applies, but the result was even more obvious. Because TSMC itself is a industry flagship, existing shareholders were willing to participate in the capital increase to maintain their ownership ratio. The market also believed this funding could drive future growth, so the stock price also rose accordingly.

But the key question is: why do sometimes capital increase stocks go up, and other times they fall? I think it depends on three factors.

The first is market demand. If the supply of new shares exceeds market needs, the stock price will be pressured downward. Conversely, if investors are eager to buy, the stock price will have support.

The second is investor sentiment. They will ask: can this funding really help the company earn more money? Or is it just diluting my rights? If they believe the capital increase plan is credible, the stock price tends to rise; otherwise, it tends to fall.

The third is changes in ownership ratios. If existing shareholders support the capital increase and buy new shares to maintain their proportion, the impact on the stock price is relatively small. But if no one participates, the dilution effect becomes obvious.

In simple terms, whether a capital increase stock will rise or not ultimately depends on the company itself. Whether the company is profitable, industry prospects, and market sentiment are the real factors that determine the stock price. A capital increase is just one variable; don’t assume that seeing news of a capital increase automatically means the stock will go up.

If you want to participate in a capital increase, remember to first understand the company’s fundamentals. Also, be patient after participating, because from paying the funds to receiving new shares, processes like exchange approval and shareholder registration all take time.

Recently, I’ve been watching some listed companies’ stocks on Gate. If you want to learn more about these, you can check out their market data and financial reports. Anyway, investing is about doing your homework—don’t make decisions based solely on a capital increase news.