To gauge the direction of the artificial intelligence (AI) investment cycle in the second half of the year, analysts suggest focusing on the movements of capital providers rather than the investment scale of big tech companies. While big tech firms are likely to continue investing due to anticipated future profits from AI, capital providers such as banks, venture capitalists, and pension funds may halt funding if the risk of losses increases.
Lee Eun-taek, head of research strategy at KB Securities, stated at a press conference on asset market strategies for the second half of 2026 held at the Korea Exchange in Yeouido, Seoul, that he believes the stock market will perform reasonably well in the second half, but the cycle is approaching its later stages. He emphasized the need to pay attention to the actions of capital providers.
Lee noted, "The likelihood of big tech companies voluntarily halting their investments is very low," citing differences in investment structures. He explained, "Hyperscalers can push through to success regardless of cash flow, which makes it difficult for them to stop investing."
In contrast, capital providers are more sensitive to the possibility of recovering their principal than to the additional profits from successful investments. Therefore, to determine the turning point of the AI investment cycle, it is more important to observe when capital providers might stop funding rather than how much big tech will invest.
Lee pointed out that in the past three instances of bubble collapses, it was capital providers who ceased funding rather than companies reducing their investments, which led to a downturn in the investment cycle. He identified economic slowdown and rising interest rates as factors that could alter capital providers' judgments. As the economy slows and corporate profits decline, capital providers' risk perceptions increase, and rising interest rates may lead to a shift of funds to relatively safer assets.
He specifically highlighted a trend of rising interest rates as a common phenomenon in the three previous bubble collapses. However, he cautioned against predicting market bubble collapses solely based on rising interest rates.
Lee remarked, "Nine out of ten interest rate hikes present buying opportunities," stressing that the conditions of the final interest rate hike that triggers a bubble collapse are crucial. He indicated that what investors should focus on is not the interest rate increase itself, but rather a 'No Way Back' situation where the market perceives that rates can no longer decrease.
He identified inflation as a key factor contributing to such a situation. When inflation rises, central banks find it challenging to lower rates or shift to accommodative policies, which can prolong the period of rising interest rates.
Additionally, he pointed out that a specific interest rate level to watch in the current market is the U.S. 10-year Treasury yield in the low 5% range. Lee stated, "If the U.S. 10-year Treasury yield consistently surpasses the low 5% range, it could pose some risks," adding that exceeding 5% would mark the highest level since 2007.
* This article has been translated by AI.
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