Put aside, for just a moment, all the arguments about AI safety. Today’s decision by the Federal Reserve to raise interest rates may be a bigger issue for the AI sector in the short term. Long-term bond yields had already risen, of course. But the Fed’s action—pushing up short- and medium-term borrowing costs—seems sure to crimp the debt-fueled AI boom, particularly given the prospects that another rate hike is possible later in the year. #The Most Important Thing
The most vulnerable to higher rates are surely small companies that have weak or no credit ratings but need to raise money, such as would-be neoclouds hoping to finance data center projects. Think Rum Group, which plans a big data center in Georgia for a deal with Anthropic but doesn’t have financing for the project yet. (For more on startups’ financing challenges, see here). But the ripple effects of higher interest rates will eventually affect everyone, including big tech firms spending a fortune to expand their data centers for AI.
Most of these—Amazon, Meta Platforms and Google—have already loaded up on debt, giving themselves a bit of a buffer. Just on Monday, Amazon sold 4.2 billion pounds of debt (about $5.7 billion), adding to the $67 billion raised in the first half of the year that had already nearly doubled its debt. Most of the bonds sold this year were fixed-rate debt, according to Amazon’s securities filings, which means Amazon won’t pay more in interest costs as rates rise. Google and Meta also issued debt to varying degrees. Still, at the rate these companies are spending, they’ll have to borrow more money again before too long.
Amazon’s borrowings, for instance, offset heavy capital expenditures and investments in both Anthropic and OpenAI, keeping its cash level flat at June 30, at $123 billion from where it was at Dec. 31. But since June 30, Amazon has poured another $21 billion into OpenAI, completing its $50 billion commitment. Analysts estimate Amazon will burn $10 billion in the second half, according to S&P Global Market Intelligence, and another $43 billion in the first half of 2027.
To be sure, these big tech companies are highly rated by credit agencies and will still be able to raise at better terms than smaller firms. But the ramifications of the Fed’s action can’t be understated. The cost of money just went up. The AI picture just got fuzzier.
https://www.nytimes.com/2..
