- Rising borrowing costs and credit risks may curb AI investment growth soon
- Top tech firms plan $1.04 trillion capex by 2027 despite market caution
- Bond yield spreads and credit default swaps indicate investor conservatism
The dramatic rise in the number of investments in artificial intelligence might be peaking soon as the increase in borrowing costs, increasing credit risks, and growing pressures on cash flows raise urgent doubts about how long the big players in technology can continue investing at such a high rate.
In its latest report, strategist Christopher Wood of Jefferies commented that the market start reflecting the increased reluctance to continue financing projects in artificial intelligence. The brokerage mentioned that the planned investment cycle might come to an end much earlier than anticipated, putting the optimistic projections for the investments the following year at risk.
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The looming doubts have been expressed even though it is assumed that the four top hyperscalers, Microsoft, Amazon, Alphabet, and Meta, will spend a record total of more than $ 1.04 trillion on capital expenditure in 2027.
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However, the credit market is starting to show some pressure. Bond yield spreads on bonds issued by Amazon, Alphabet, and Meta have widened since October and the rates for the credit default swaps issued by Oracle and Coreweave announced a jump.
Jefferies believes that all of these events suggest that investors are getting conservative about the investments in the new phase of the AI infrastructure race.
Investment has reached an all-time high. Capital expenditure driven by AI played a significant role in US GDP growth of 2.1% across four quarters leading to September 2026, accounting for 1.39 percentage points or 67%.
Investment in software and information processing hit record levels at 5.35% of US nominal GDP in September, exceeding the previous high of 4.46% reached back in December 2000.
Concerns about the latest earnings quarter have grown among investors. Although all four major cloud computing companies have increased their expenditure for the September quarter, traditional business figures show weakness.
Alphabet's search revenue has risen by 12% year-on-year to reach $63 billion in September compared to a growth rate of 19% in March. Google Cloud revenue has skyrocketed by 103% to reach $30.7 billion.
Amazon's revenue from online stores went up by a mere 2% to $68.5 billion, while AWS made $46 billion, showing a solid growth of 39%.
The report talks about poor cash flow in addition to that. Amazon and Alphabet have recorded negative cash flow of $35 billion and $9 billion, respectively, in September.
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Jefferies has drawn attention to the increasing reliance of AI infrastructure firms on debt and intricate financing methods. Investments in data centres are being made via unconventional financing techniques and collaborations with private lenders.
For example, CoreWeave has broadened its $3.1 billion financing, as the yield on its income has gone up from 7.62% to 8.36%, which shows that investors are becoming more cautious.
Besides, the report mentions the case of the Chinese AI market, where companies are concentrating on cost-effective computing and viable business ideas and not pursuing the goal of achieving artificial general intelligence.Moreover, Jefferies pointed the rising significance of AI technology in drug development, noting that the healthcare industry would offer more sustainable investment options than the infrastructure.
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