Analysts: High US Treasury yields could delay the AI boom

Joachim Klement, strategist at Panmure Liberum, said the tech giants were pouring billions of dollars into artificial intelligence, driving US equities higher in the process. But rising long-term Treasury yields are jeopardising the investment boom in infrastructure such as data centres. The challenge for the AI investment boom is that it needs to be financed by huge amounts of money, and much of the investment will rely on debt financing.
Yields on long-term government bonds have risen significantly since 2023, except for the recent pullback, and are likely to rise further in 2026. This will push up the cost of debt, making some investment projects unprofitable. The data show that for every 1 percentage point increase in long-term government bond yields, the growth rate of IT equipment investment could decrease by 0.6 percentage points, and the growth rate of software investment could decrease by 0.4 percentage points. Higher government bond yields will not kill growth entirely, but they will certainly cause a delay. Given that current valuations already contain excessive expectations, this could lead to downward revisions in earnings forecasts for hyperscale companies and other growth stocks.