|
The global artificial intelligence (AI) investment cycle is facing its first major macroeconomic test as rising US and Japanese bond yields increase funding costs for large technology investments, while uncertainty over AI monetisation continues to weigh on spending, Dolat Capital said in a report.
The brokerage said the current AI investment cycle is different from earlier technology cycles as major hyperscalers have moved from asset-light business models focused on returning cash to shareholders to large-scale capital spending. These companies are increasingly funding AI investments through a combination of internal cash flows, debt and equity. The AI capex cycle is therefore entering its first meaningful macro test, with a more hawkish central-bank stance raising the funding hurdle for an investment cycle already demanding substantial capital, the report said. According to the report, the rise in bond yields comes amid heavy government borrowing, policy normalisation in Japan and increased spending on infrastructure and defence. These factors are adding to pressure on the global cost of capital. The brokerage said monetisation remains the biggest unresolved issue for the AI investment cycle. Falling token costs, improving model efficiency, rapid technological changes and the limited time available to monetise successive AI models have raised questions over whether revenues will grow fast enough to justify the large amounts of capital being invested. The key risk is not demand for AI, but whether incremental investment continues to generate sufficient returns to sustain the current pace of spending, it said. Dolat Capital also pointed to recent calls from AI company leaders for a more measured pace of frontier-model development. It said this could increase the time needed to generate returns from AI investments even as infrastructure spending remains high. The brokerage said the outlook for the AI investment cycle will increasingly depend on the US 10-year Treasury yield, Federal Reserve communication and the duration of the rate-hike cycle. The report also highlighted a supply-demand challenge in the US Treasury market, with USD 8 trillion worth of Treasuries requiring refinancing. It added that the recent rise in bond yields appears to have a significant real-rate component, indicating that pressure on long-term borrowing costs could persist. For global equities, the combination of higher yields, tighter liquidity and uncertainty around AI monetisation could create a challenging environment, the brokerage said. The next leg of the AI momentum will be determined by hyperscalers guidance, the pace of AI monetization and the direction of yields, the report said. (ANI)
|
