Ruchir Sharma argues that the AI investment boom cannot survive the current environment of higher interest rates. Global debt is at record levels, forcing governments and companies to compete for limited capital. This creates a liquidity squeeze, particularly for big tech, which is funding massive data centre build-outs through debt.
AI-related debt issuance is projected to exceed $600 billion in 2026, a tenfold increase from 2024. Sharma notes that while rates may seem historically moderate, the rapid rise after decades of low rates causes financial stress. Already, investors demand higher yields for the weakest AI borrowers.
The article draws parallels to past bubbles, like the dotcom crash and the 2008 financial crisis, where higher rates eventually deflated asset prices, starting with the weakest sectors. Sharma warns that the current dismissal of rate risks mirrors past magical thinking, suggesting that a rapid productivity boost from AI would be needed to reverse the erosion caused by tightening financial conditions.
Source: Financial Times Companies · Summarized by HeadlinesBriefing