Why Interest Rates Matter for AI Stocks

Interest rates can change what investors are willing to pay for stocks.

The companies in the chart include hyperscalers, like Amazon and Microsoft, who rent out computing power for everything from running websites to AI and neoclouds, like CoreWeave and Nebius, who focus on the powerful computers used to train and run AI.

These companies are spending billions on data centers and equipment. The chart shows how much they owe, including leases, and the free cash flow the biggest tech companies have left after spending and investing.

Higher rates make new borrowing and refinancing more expensive. They also reduce what future profits are worth today. When bonds offer a better return, investors can demand a lower stock price to take on the added risk.

That pressure can be greater for companies borrowing heavily today and expecting much of their profit years from now. Their stocks can fall even as demand for AI keeps growing, which is what has happened in particular to the neocloud market.

Until next week,
Jacob