CITIC SEC has released a research report addressing the resilience of the US artificial intelligence (AI) stock rally in a high-interest-rate environment. The report notes that the AI market surge originated amidst high rates, and data on asset performance and real investment since 2023 indicates that AI has demonstrated sustained resilience against this backdrop. The short-lived correction following the non-farm payrolls report did not alter this fundamental observation.

Historical Parallel: How Tech Revolutions Temporarily Mute Rate Impacts

Looking back at history, the dot-com boom endured persistent interest rate shocks. The key takeaway is that when markets are trading on the infrastructure build-out phase of a technological revolution, high expectations for long-term returns can outweigh the impact of rising rates. Concurrently, high interest rates put pressure on other sectors, causing capital to concentrate in "new economy" assets, which gain a scarcity premium supported by growth narratives and capital expenditure.

When Will the US AI Rally Face Renewed Macro Rate Constraints?

The report argues that interest rates transition from being merely a valuation variable to becoming a financing discipline variable when AI capital expenditure (CapEx) shifts from being funded by the internal cash flows of hyperscale cloud providers to relying on external financing. The analysis suggests the market is currently in the initial stage where interest rate constraints are beginning to translate into financing shocks.

Drawing a parallel with the dot-com era, the report presents a two-stage framework for interest rate shocks: valuation shock and financing shock. It posits that the market is now entering the second stage. Key signals of this shift include the ratio of hyperscale cloud providers' CapEx to operating cash flow nearing 100%, recent media reports on these providers seeking external financing, and the market's reaction to the June 5th rate shock, which indicated concern over the sustainability of AI CapEx financing under high rates rather than the absolute level of rates itself.

Assessing the Current Pressure Level

However, by evaluating current metrics—including the cash flow pressure (approximately 46% of the dot-com peak level) and leverage (14%) of hyperscale cloud providers, AI financing cost pressure (68%) and cumulative debt scale (7%), and market sentiment towards AI CapEx (50%)—the report concludes that the US AI sector remains some distance from the intense financing pressure levels witnessed during the dot-com bubble. Therefore, macroeconomic interest rate shocks are still considered digestible for the AI rally at this juncture.

Key Risk Factors

The report highlights several risk factors: US inflation and interest rates rising more than expected; external financing costs for hyperscale cloud providers increasing beyond expectations; and AI-related companies failing to meet profit expectations.