Morning Bid: Feeding the AI beast

Investor Caution Grows as AI Infrastructure Costs Shape Global Markets

AI Investment Trends and Market Impacts

A look at the day ahead in European and global markets from Ankur Banerjee

Rising Capital Demands and Investor Concerns

Investor angst over AI bellwethers' seemingly insatiable appetite for capital to build the infrastructure necessary for the technology to start paying off has cast a shadow over markets, as worries about valuations and fears over profitability persist.

A series of reports from different corners of the globe has sharpened the focus on the AI trade this week, weighing on technology stocks.

Global Fundraising and Revenue Updates

OpenAI has told investors its annualised revenue for September was almost $50 billion, a drop from what it signalled earlier, Reuters reported, while in Australia, data centre operator Firmus shelved its $5 billion initial public offering, and said it would opt for a private fundraising round instead.

Over in the US, another massive round of fundraising appears to be on the way, with SpaceX, Broadcom and Oracle all expected to raise billions to buy high-end AI chips.

Financing Challenges Amid Rising Interest Rates

Morgan Stanley estimates that AI infrastructure will require $1.5 trillion in external financing by 2028, with fundraising happening just as interest rates across the globe rise to combat the inflationary pressure from higher energy prices.

That makes it more expensive to finance facilities whose returns may take years to materialise, while investors are also demanding greater visibility into the customers and cash flows that will support those investments.

Broader Market Pressures and Geopolitical Risks

Public Sentiment and Existential Concerns

Meanwhile, public uneasiness with AI, and the small group of people who seemingly hold sway over it, has risen in recent months alongside concern that the technology could pose an existential threat to humanity.

Energy Prices, Bond Yields, and European Tensions

Brent crude futures remain above $100 per barrel with the war in the Middle East showing no signs of easing, with bond yields still at elevated levels. A months-long global bond selloff has pushed borrowing costs to multi-decade highs, with much of the pain being felt in France.

The pressure built on the country on Thursday as euro zone finance ministers and the European Central Bank told France to pass a 2027 budget to calm bond markets.

Key Market Events to Watch

Key developments that could influence markets on Friday:

European Central Bank's Piero Cipollone and Isabel Schnabel speak, Brazil inflation (September), Canada employment (September)

(By Ankur Banerjee in Singapore; Editing by Kate Mayberry)