MARKETS BECOMING MORE DISCERNING ON ARTIFICAL INTELLIGENCE CAPITAL EXPENDITURE

03.11.2026 During the autumn markets have become more discerning about the return prospects for Artificial Intelligence (AI) capital expenditure. Below we analyse this in more detail and look at the implications for markets.

                One feature of the AI boom has been the rise of neocloud companies. These businesses are generally start-ups that borrow money to build data centres for third party clients. At present there is a shortage of data centre capacity, so market conditions are favourable. However, the debt markets have begun to worry about what will happen when the shortage of data centre capacity moves to a glut. At present the bond yields on neocloud debt have moved up into double figures – effectively closing the bond market for these companies.

                Last week’s Big Tech results were mixed. In general, the equity markets were harsh on companies who they regard as having out-of-control AI capital expenditure plans. Indeed, investors seem to be increasingly wary of large technology firms that are spending more on capital expenditure than they are generating in cashflow from their businesses.

                The next big market event will be the Anthropic Initial Public Offering. Investors will look to see what sort of valuation it manages to achieve and how it trades in the first couple of weeks after its listing. Artificial Intelligence is a great product but it remains to be seen how profitable it will be and who will make the profits from it. As a result, I think it is sensible to ensure that portfolios are diversified across geographies and investment styles.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin