AI investment, govt borrowing drive global cost of capital higher: Goldman Sachs (www.tribuneindia.com)

Goldman Sachs recently released a report indicating that rising investments in artificial intelligence (AI) infrastructure, coupled with increased government borrowing, are elevating the global cost of capital. This trend is significant as it links two pressing issues for investors: the surge in demand for capital from both private and public sectors, driven by AI-related expenditures and infrastructure requirements. The report highlights that significant capital expenditure by AA-rated issuers has consistently outpaced historical growth rates, reflecting a strong demand for funding—particularly in AI sectors, which have accounted for 44% of US convertible bond issuance this year. As companies are compelled to raise more debt and equity to support their AI investments amid higher interest rates and inflationary pressures, the implications for the AI/ML community are profound. The elevated cost of capital could impact equity valuations if profit growth slows down, as tech valuations have already moderated from previous highs. Goldman Sachs forecasts that while there are opportunities for growth across various sectors, the sustainability of earnings will be crucial in this higher-cost environment, potentially putting downward pressure on equity prices if growth does not keep pace with rising financing costs.