AI Boom and Government Debt Drive Up Global Borrowing Costs, Warns Goldman Sachs

Hold onto your wallets: the global cost of borrowing is surging, and Goldman Sachs points the finger at two major culprits: massive AI infrastructure spending and ballooning government debt. This fierce competition for capital is pushing up bond yields worldwide, even as strong corporate earnings have tried to cushion the blow, signaling a tougher road ahead for investors and businesses alike. Leading the charge are 'hyperscale' tech giants pouring hundreds of billions into AI infrastructure like data centers, forcing them to tap debt and equity markets more aggressively, with NVIDIA central to this spending spree. At the same time, governments globally are piling on sovereign debt for everything from new infrastructure to energy security and defense, with the US national debt alone hitting nearly $40 trillion in July 2026. This dual demand for cash has compressed equity risk premia, making stocks less attractive compared to safer bonds, a trend the Federal Reserve is closely watching. Looking ahead, investors need to be sharp. With central banks, including the Federal Reserve under Chair Kevin Warsh, still battling persistent inflation by raising interest rates, the era of cheap money seems firmly in the rearview mirror. While Goldman Sachs still sees robust global economic growth for 2026, any dip in corporate profit growth could expose equities to significant pressure from these higher capital costs. The financial world is watching to see if AI's long-term productivity gains can eventually offset the short-term financing crunch, but for now, prudence is key.