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The global artificial intelligence investment cycle is encountering its first significant macroeconomic challenge as rising bond yields in the United States and Japan increase funding costs for major technology projects, according to a report by Dolat Capital.
The brokerage noted that the current investment cycle differs from previous technology trends because major hyperscalers have shifted away from asset-light business models that prioritized returning cash to shareholders. Instead, these companies are now engaging in large-scale capital expenditure, funding their AI initiatives through a mix of internal cash flows, debt, and equity.
The report stated that the AI capital expenditure cycle is facing a meaningful test as a more hawkish stance from central banks raises the funding hurdle for an investment cycle that already requires substantial capital. Factors contributing to the rise in bond yields include heavy government borrowing, policy normalization in Japan, and increased spending on infrastructure and defense.
Dolat Capital identified the monetization of AI as the primary unresolved issue for the sector. The report highlighted that falling token costs, rapid technological advancements, and the limited window to monetize successive AI models have raised concerns regarding whether revenue growth will be sufficient to justify the high levels of capital investment. The brokerage emphasized that the central risk is not a lack of demand for AI, but whether incremental investments will continue to generate adequate returns to sustain the current pace of spending.
The report also noted that recent calls from AI industry leaders for a more measured pace of frontier-model development could extend the timeline for generating returns, even while infrastructure spending remains elevated. Looking ahead, the brokerage suggested that the outlook for the AI investment cycle will be increasingly influenced by the U.S. 10-year Treasury yield, communications from the Federal Reserve, and the duration of the current rate-hike cycle.
Additionally, the report pointed to a supply-demand challenge in the U.S. Treasury market, noting that 8 trillion dollars in Treasuries require refinancing. The brokerage concluded that the combination of higher yields, tighter liquidity, and uncertainty surrounding AI monetization could create a challenging environment for global equities.
Article and image source: japanherald.com
