Higher interest rates add to fears of AI bubble popping

Higher interest rates from the US Federal Reserve, Bank of England, and other central banks are intensifying pressure on the booming AI industry. Charles Lagares, COO of EBC Financial Group, told HotMinute that rising global yields can fuel AI bubble concerns because AI valuations depend heavily on profits expected years from now. He noted that AI-related and semiconductor shares have fallen sharply since July amid doubts about whether AI earnings and spending can keep growing. Lagares highlighted that AI companies now fund more spending with borrowed money, making them more vulnerable to rising rates. The UK's Financial Policy Committee cited a Morgan Stanley estimate that global AI-related debt issuance reached around $450 billion by early September, more than double the total for all of 2025. Interest on this debt must be paid regardless of whether AI revenues arrive on schedule, and the FPC warned that rising debt combined with limited transparency could amplify losses if expectations disappoint. It also noted that a reassessment of expected AI productivity gains could affect government bond markets and public finance forecasts. Lagares pointed to two warning signs: whether AI revenues grow fast enough to cover interest on borrowed infrastructure money, and how much more interest lenders charge AI-linked borrowers versus safer ones. Higher rates worsen both, as debt costs more and lenders demand more return. The FPC said AI financing could affect a wide range of investors and funding markets, including those funding UK AI start-ups and data centres.

(Source：Hotminute)