AI Capex Boom Masks Structural Credit & Valuation Risks

NVIDIA has described the coming five years as a $3 trillion to $4 trillion AI infrastructure opportunity during the company's Q2 2026 earnings call, based on system-level deployments across hyperscalers, sovereign AI projects, and enterprise clusters. The global semiconductor industry is expected to reach US$975 billion in annual sales in 2026, a historic peak fueled by an intensifying AI infrastructure boom, with growth reaching 22% in 2025 and projected to accelerate to 26% in 2026. However, from a rates perspective, this thesis presents a critical structural tension: semiconductor equity valuations face significant headwinds from elevated interest rate dynamics despite strong revenue growth. Interest rates influence investment, with corporate borrowing rates increased along with inflation into 2023 before moving sideways and declining modestly in recent months, though many firms still have more cash on hand than before the pandemic and can avoid borrowing at elevated rates. The semiconductor industry's capital intensity creates direct leverage to rate conditions. For capital-intensive industries (manufacturing, real estate, infrastructure), the cost of debt is a major input, with lower interest rates improving margins, and for consumer-facing industries (homes, autos, appliances), easier financing means higher demand. Most critically, AI's buildout is dominated by a handful of companies that are spending on a scale so large it has macro impact, and the challenge for investors is reconciling whether AI will generate revenues of the same order of magnitude as the huge capital spending plans, with overall revenues potentially justifying the spend yet unclear how much will accrue to the tech companies driving the buildout. Through a rates lens, the structural risk centers on: (1) elevated discount rates compressing semiconductor equity multiples if Treasury yields remain sticky above 4%, (2) the front-loaded capex burden creating debt-financed cash flow stress relative to back-loaded revenue realization, and (3) potential term premium expansion limiting access to capital if fiscal pressures mount. While the 2026-2028 period likely sustains strong semiconductor revenue growth from AI capex, equity valuations could face compression even amid revenue expansion if rates fail to decline materially or if geopolitical factors support higher term premiums.