High Treasury yields could slow down AI boom

Tech giants are ploughing money into artificial intelligence, fuelling the ongoing US stock market rally in the process.

- Joachim Klement

But rising long-term Treasury yields are jeopardising the investment boom in data centres and other infrastructure. Might the Federal Reserve end up bailing out these companies and the government by introducing yield curve control in 2026?

While the US economy faces persistent inflation and signs of labour market weakness, US stocks continue to post new all-time highs. The main source of this divergence between the economy and the stock market is investor enthusiasm for Al and the vast investments needed to run these models and store data.

Hyperscalers such as Microsoft, Amazon and Meta are already investing billions in data centres and Al software. Consensus estimates show these companies are expected to increase their capex by 11% per year between 2025 and 2029. Keep in mind that these companies are on track to boost their capex by 62% year-on-year in 2025.

These companies may be at the heart of the spending boom, but the whole US economy appears to have been gripped by a tech investment surge. Second-quarter GDP data in the US showed that investments in IT equipment and software rose 20.4% and 12.2% year-on-year, respectively.