Analyst: High U.S. Treasury Yields May Delay AI Boom

According to a report by Jinse Finance, Panmure Liberum strategist Joachim Klement stated that tech giants are pouring massive amounts of capital into the field of artificial intelligence, driving the continued rise of the U.S. stock market in the process. However, the rising long-term U.S. Treasury yields are threatening the investment frenzy in infrastructure such as data centers. The challenge facing the AI investment boom lies in the enormous funding required, which needs to be secured through financing, with a significant portion relying on debt financing. Since 2023, long-term Treasury yields have risen significantly (with the exception of recent pullbacks) and may continue to climb through 2026. This will increase the cost of debt, rendering some investment projects unprofitable. Data shows that for every 1 percentage point increase in long-term Treasury yields, the growth rate of IT equipment investment may decline by 0.6 percentage points, while the growth rate of software investment may drop by 0.4 percentage points. Although higher Treasury yields will not completely stifle growth, they will inevitably cause delays. Given that current valuations already reflect overly optimistic expectations, this could lead the market to lower earnings forecasts for mega-cap companies and other growth stocks.