AI investments reshaping U.S. financial landscape

Investment in artificial intelligence is significantly impacting U.S. markets, with Wall Street growing increasingly concerned about its crowding-out effect. The surge in capital flowing into the sector is driving up borrowing costs for the U.S. government, non-AI businesses, and everyday consumers, who now face higher mortgage and auto loan rates. The yield on the U.S. 10-year Treasury note, a key benchmark for borrowing rates, stands at 5.22%. Despite rising borrowing costs, the AI industry continues to expand, with major tech firms like Amazon, Alphabet, Microsoft, Meta, and Oracle, along with data center and energy companies, securing increasing amounts of capital. Foreign net purchases of U.S. corporate bonds have surpassed those of Treasury notes and bonds as of July. Apollo’s Torsten Slok warned that AI’s rate-insensitive growth is causing a 'Dutch disease' by diverting resources from sectors like housing and autos. However, signs of slowing AI borrowing are emerging, with global AI-debt issuance in September reaching $23 billion, nearly half of August’s level and below June’s record of $113 billion. Liaquat Ahamed, author of 'Lords of Finance' and '1873', noted that the spike in interest rates marks a classic end to a private investment boom.