'AI bubble fueled by zero rates faces inflation struggle ahead - Apollo'

 The tech sector and AI trade are vulnerable to upward inflationary pressures, according to Apollo Global Chief Economist Torsten Stock.

Slock notes that when "the Fed started raising interest rates in March 2022, the Magnificent 7 (AAPL) (AMZN) (GOOG) (GOOGL) (META) (MSFT) (NVDA) (TSLA) stopped hiring more workers."

Tech firms "are priced to deliver cash flows far out in the future, which makes tech companies more vulnerable to changes in the discount rate," he said.

They "often need to borrow to finance multi-year projects, which also makes them more vulnerable to higher interest rates (and) when interest rates are high, general risk appetite among investors is low, as investors can generate higher returns in fixed income," he added.

"The bottom line is that the bubble in AI valuations was simply the result of a long period with zero interest rates," Slock said. 

"With upward pressures on inflation coming from tariffs, deglobalization, and demographics, interest rates will remain high and continue to be a headwind to tech and growth for the coming years."

   

Magnificent 7 hiring (Bloomberg and Apollo)
https://www.msn.com/en-us/money/markets/ai-bubble-fueled-by-zero-rates-faces-inflation-struggle-ahead-apollo/ar-AA1Fs7c0