Investment giant BlackRock has revised its outlook on long-term U.S. government bonds, citing concerns that a significant increase in spending on artificial intelligence could lead to higher borrowing costs.
The firm's research division announced on Tuesday that it is now bearish on these bonds, a change from its previous neutral stance. This outlook is projected for the next six to twelve months.
The core issue identified is the substantial borrowing anticipated from tech companies to finance AI projects. While these companies generally have strong balance sheets, this new debt adds to the existing U.S. national debt, which exceeds $38 trillion.
Rising Leverage Creates Vulnerabilities
BlackRock Investment Institute stated in its 2026 outlook report that "Higher borrowing across public and private sectors is likely to keep upward pressure on interest rates." This sentiment was echoed by senior investment managers within the firm, who perceive emerging warning signs in the market.
The report further elaborated that "A structurally higher cost of capital raises the cost of AI-related investment and affects the broader economy." Additionally, increased debt levels can introduce fragility into the financial system, making it more susceptible "to shocks such as bond yield spikes tied to fiscal concerns or policy tensions between managing inflation and debt servicing costs."
AI Investment Continues to Drive Stock Optimism
Despite the concerns regarding bonds, BlackRock maintains an optimistic view on U.S. stocks. The firm believes that ongoing AI investments will continue to support higher stock prices in the coming year. Revenue growth generated from AI is expected to benefit the broader economy, although the impact will likely vary across different companies.
The institute suggested that "Entirely new AI-created revenue streams are likely to develop. How those revenues are shared is likely to evolve – and we don’t yet know how. Finding winners will be an active investment story."
The report acknowledged that AI could eventually improve government finances through enhanced productivity and increased tax revenues, but this is anticipated to be a longer-term development.
Major technology companies, including Oracle, Meta, and Alphabet, have already undertaken significant bond sales this year to fund their AI infrastructure. This wave of borrowing coincides with AI spending becoming a fundamental driver of U.S. economic growth.
Other Market Views
BlackRock has also adopted a more negative stance on Japanese government bonds, anticipating higher interest rates and an increased supply of bonds in the market.
Conversely, the firm has shifted to a positive outlook on debt from developing countries, moving from a previously negative view. This adjustment is attributed to a reduction in new bond issuances and improved fiscal health in these nations.