Surging investment in artificial intelligence infrastructure and higher government borrowing are pushing up the global cost of capital as companies and governments compete for funding, Goldman Sachs said in a report.
The bank said the AI investment boom is linked to rising interest rates as companies turn to debt and equity markets to finance capital expenditure while governments borrow more for infrastructure, energy security and defence.
The pressure is also being compounded by inflationary risks from higher energy prices, according to the report. Goldman Sachs said higher bond yields and greater uncertainty around geopolitics and AI have changed the funding environment from the period of exceptionally low borrowing costs seen in major economies in recent years.
The impact of higher AI investment is already visible in corporate financing. Capital expenditure by AA-rated issuers rose 65 per cent year-on-year in the second quarter, marking the 10th consecutive quarter in which aggregate capex growth among these issuers exceeded 35 per cent, Goldman Sachs said.
The increase in investment is putting pressure on corporate cash flows and prompting companies to seek additional funding from credit and equity markets. US convertible bond issuance has reached USD 135 billion so far in 2026, with AI-related borrowers accounting for 44 per cent of the total, according to the report.
Goldman Sachs’ credit team has raised its forecast for full-year US investment-grade gross issuance by $ 200 billion to $ 2.3 trillion. AI-related issuers are expected to account for about one-quarter of US investment-grade gross supply this year.
The increase reflects the scale of capital required for the AI infrastructure build-out, as companies seek to fund spending that can reduce free cash flow in the near term. Goldman Sachs has separately estimated that nearly $ 500 billion of AI-related debt issuance has taken place globally in 2026 so far.
The private-sector demand for capital is coinciding with higher borrowing requirements from governments. Goldman Sachs said spending on infrastructure, energy security and defence, along with inflationary pressure from energy prices, is contributing to higher funding costs.
The bank noted that 30-year government bond yields in Germany and Japan were close to zero as recently as 2022, while yields have since risen amid greater uncertainty around geopolitics and AI. The combination means companies are financing large investment programmes in an environment where the cost of capital is materially higher than during the era of ultra-low borrowing costs. ANI
Goldman Sachs said higher funding costs could also affect equity markets if corporate earnings growth slows. While global technology valuations have moderated and remain below their 20-year median, the bank said the key question is whether the current strength in earnings can be sustained.
A slowdown in profit growth alongside a higher cost of capital could put downward pressure on equity prices. It expects earnings growth and nominal gross domestic product growth to remain important drivers of equity performance, while higher bond yields could limit further expansion in valuations.
