AI spending splurge that drove record stocks now shows cracks

Financial markets were already under strain from wars, soaring sovereign debt and trade tensions, with trouble visible from selloffs in Japanese and French bonds to plunging emerging-market currencies. The AI trade had been the one source of investor optimism, propelling stocks to record highs and supporting hopes for 3% global growth this year, aided by Washington's light-touch regulatory approach. Now that support is starting to crack.

The immediate pressures are inflation revived by President Donald Trump's erratic trade policies and the Iran war's energy shock, which is putting central banks under pressure to raise interest rates. At the same time, AI's capital-investment surge and heavily indebted governments are driving borrowing costs to multidecade highs. Together, these forces suggest the AI-driven optimism that kept markets aloft may be harder to sustain if borrowing costs keep rising.