Goldman Sachs: AI Investment and Government Borrowing Raise Global Capital Costs

Summary

Goldman Sachs says rising investment in AI infrastructure and increased government borrowing are pushing up the global cost of capital. Companies are raising more debt and equity to finance AI-related capital expenditure, while government spending on infrastructure, energy security and defence, along with energy-price inflation, is adding to funding pressures. The bank said higher yields and geopolitical and AI-related uncertainty have sharply changed the financing environment since 2022, when 30-year government bond yields in Germany and Japan were near zero. Corporate capital expenditure is already reflecting the trend: spending by AA-rated issuers rose 65% year over year in the second quarter, the tenth consecutive quarter in which aggregate AA capex growth exceeded 35%. US convertible-bond issuance has reached $135 billion this year, with AI-related borrowers accounting for 44%. Goldman’s credit team also raised its forecast for full-year US investment-grade gross issuance by $200 billion to $2.3 trillion, with AI-related issuers expected to represent about a quarter. The report warns that if earnings growth slows, higher funding costs could pressure equity prices. Technology valuations are below their global 20-year median, but higher bond yields may limit further expansion; earnings and nominal GDP growth remain key drivers of equity performance.