AI buildout meets higher rates
Tech investors are having to think about the bond market again as the AI buildout pushes companies toward debt. For years, the biggest tech names could mostly shrug off rising rates because they had plenty of cash. Now that cushion is getting thinner as they pour money into data centers and other AI infrastructure.
The shift is moving beyond smaller tech firms and into the megacaps. Amazon, Alphabet, Microsoft and Meta are projected to spend a combined $750 billion this year on AI infrastructure, up more than 80% from 2025. CNBC also reports that Nvidia, Oracle, Amazon, Alphabet and Meta are tapping debt markets for tens of billions of dollars each, a sign that borrowing is becoming part of the funding plan.
That matters because the cost of borrowing is moving up at the same time. The Federal Reserve under Kevin Warsh flagged the possibility of a rate hike in 2026, and the 10-year Treasury yield is near 4.45%. That makes it more expensive for companies to finance long-lived projects, especially if the money is being raised with debt instead of coming from excess cash.
Cash flow is the tighter constraint. Goldman Sachs said capital spending as a share of cash flow is at the highest level since the dot-com era, and it expects tech capex to reach about $920 billion this year. Amazon is widely expected to post negative free cash flow, while Nvidia still has a strong cash position, with free cash flow jumping past $48.5 billion in its latest quarter.
