Does AI Increase the Cost of Capital for Everyone Else?

By Kartik Yadavalli, Fall 2026 Intern

In Lewis Carroll's Through the Looking-Glass, Alice and the Red Queen run as hard as they can and end up under the same tree where they started. “Here,” the Queen explains, “it takes all the running you can do, to keep in the same place.”

Economists call this a Red Queen race: everyone sprints, no one pulls ahead, and standing still means falling behind. It describes the AI buildout well. Every large technology company is pouring money into data centers and chips, and most of that spending buys no lasting lead. It just keeps each company level with rivals spending as hard.

That race has a financing side, and this is where it reaches businesses with no connection to AI at all. The question worth asking: is the AI buildout actually raising the cost of capital for everyone else, or has the market simply found a tidy reason for higher rates?

Start with the borrowing.

Capital spending at the largest tech companies is now approaching the cash their operations throw off, so even companies sitting on huge cash piles are turning to the bond market. Goldman Sachs counts roughly $194 billion of hyperscaler bond issuance through early July, and close to $500 billion once you add everything tied to AI.

More borrowing does not automatically mean higher rates. The bond market is deep, and investors can make room. The strain shows up in narrower places, mainly in long maturities. AI-related borrowers were about 18% of investment-grade issuance this year but roughly 40% of everything sold past 15 years. As big buyers hit their limits on any single name, they ask for a little more yield. On the largest AI deals, that extra concession has widened from a couple of basis points to as much as 20.

Across the whole market, the added cost looks small. Goldman's rule of thumb puts it at about five basis points. Easy to conclude nothing has changed.

I would be careful with that.

The cost will not land evenly. A tech giant can absorb slightly pricier debt if the spending pays off. A company carrying a lot of leverage, one that has to refinance soon or borrow to fund an acquisition, has far less room.

That is why a business owner thinking about a sale should pay attention.

Most buyers use debt. When their borrowing gets more expensive, the return they need goes up, and the price they can justify paying comes down.

Even if the Federal Reserve holds rates steady, a crowded bond market can still push spreads and lending terms the wrong way. If financing tightens, it matters more which buyers are active and when you choose to run a process.

Coverage of AI is everywhere, and if you run a manufacturing or health care company, it can read like a story about someone else. It isn't. The same financing boom that pays for the data centers also runs through the debt that helps fund the sale of your business, a long way from Silicon Valley.

In a Red Queen race, even those who never meant to run can feel the ground move under their feet.

Kartik Yadavalli is an investment banking intern at Ravinia Capital and an incoming Economics sophomore at the University of Chicago.