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Rising Treasury yields are putting pressure on the market’s AI rally, but they have not yet stopped it. Higher rates can reduce the value investors assign to future earnings and make debt-funded data-center projects more costly. At the same time, strong earnings expectations and demand for AI infrastructure have supported technology shares. Bloomberg’s October 4, 2026 report describes a market under strain—not a guaranteed selloff.

Why rising Treasury yields matter to AI stocks

Treasury yields influence the rate investors use to value future profits. When yields rise, those future earnings are worth less in today’s dollars, all else equal. That can weigh especially heavily on high-growth companies whose valuations depend on profits expected years ahead.

Higher borrowing costs also matter on the operating side. Building data centers and buying the power, chips and other equipment they require takes substantial capital. If companies borrow more to fund that spending, persistently high rates can make projects more expensive and raise the bar for the returns they must generate.

In the week before Bloomberg’s October 4 report, the 30-year Treasury yield reached 5.69% and the 10-year yield topped 5.3%; Bloomberg said neither level had been reached since 2002. Kiplinger separately recorded October 1 intraday highs of 5.693% for the 30-year and 5.344% for the 10-year, followed by closing yields of 5.603% and 5.234%, respectively. These are dated observations, not current quotes. Bloomberg via Yahoo Finance Canada; Kiplinger.

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Why the rally has held up so far

Earnings expectations are supporting valuations

Bloomberg Intelligence expected third-quarter technology-sector earnings per share to grow more than 65% and S&P 500 earnings per share to rise more than 24%. Those are forecasts reported by Bloomberg, not final results. The S&P 500 was trading below 19 times forward earnings, compared with above 21 in May, according to the October 4 report. Strong expected profit growth can help offset some pressure from higher discount rates, though it does not eliminate it.

Recent index performance remains strong

Bloomberg reported that the Nasdaq 100 reached a new record on Friday and was up 22% for the year; the S&P 500 was less than 1% below its August all-time high. Microsoft, Nvidia and Apple accounted for much of recent index gains, making the market’s strength dependent in part on a small group of large technology companies.

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AI infrastructure is generating revenue for suppliers

Spending on AI infrastructure benefits chipmakers and data-center construction companies through orders and supplier revenue. As one company-specific example, Hewlett Packard Enterprise reported fiscal 2026 third-quarter Cloud & AI revenue of $9.0 billion, up 25.4% year over year. That result illustrates demand at one supplier; it is not a measure of the entire AI market. HPE’s fiscal 2026 third-quarter results.

AI spending brings a financing and returns question

The same investment that supports suppliers creates exposure for the hyperscalers paying for it. Bloomberg reported that annual free cash flow had turned negative at Alphabet, Amazon and Meta. Bloomberg Intelligence analyst Robert Schiffman said those companies’ cash needs exceeded internal sources and that debt markets would drive leverage higher over the next two years. Bloomberg also noted that ratings had not yet been hurt, citing expected EBITDA growth as an offset.

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This creates a two-sided test for the AI trade: infrastructure spending must produce enough revenue and profit to justify its cost, while companies must manage the financing burden if internal cash generation falls short. The available figures do not establish when, or whether, every major project will earn an adequate return.

What could intensify the pressure

  • Persistent inflation: If inflation remains high, the Federal Reserve may keep policy restrictive or tighten further, potentially pushing market yields higher.
  • Oil prices and geopolitics: Rising oil prices can add to inflation concerns. Bloomberg said a resolution of the Iran war could ease oil pressure, but the timing and effect were uncertain.
  • Slower growth: A weaker economy could undermine the earnings growth expected to support stock prices, even if it eventually reduces inflation pressure.
  • More expensive financing: Higher borrowing costs can raise the expense of data-center investment and make expected project returns less attractive.

Bloomberg quoted Principal Asset Management strategist Magdalena Ocampo describing a shift toward perceived upside risk to inflation and downside risk to growth. Those competing concerns help explain why investors can remain optimistic about AI earnings while becoming more cautious about the broader rate and growth outlook.

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What investors should watch as yields rise

The most useful signals are the ones that test both sides of the market’s argument: whether AI-related investment is translating into earnings, and whether rising rates are eroding the valuation or financing case.

  • Treasury yields: Track the 10-year and 30-year rates over time rather than treating a single intraday high as a lasting level.
  • Reported earnings versus forecasts: Compare actual results with the growth expectations cited by Bloomberg Intelligence; estimates can change and are not results.
  • Cash flow and debt: Watch whether large AI spenders can fund capital expenditure internally or rely increasingly on borrowing.
  • Returns from infrastructure: Look for evidence that data-center and AI investments are generating revenue and profit commensurate with their cost.
  • Market breadth: Check whether gains extend beyond a few megacap technology stocks, since concentration can leave major indexes vulnerable to weakness in those names.
  • Inflation, oil and growth: These factors can move yields and earnings expectations in opposing directions.

Comments in Bloomberg’s report about thresholds such as 5% or 6% were market participants’ views, not established turning points. The figures and expectations cited in the report describe conditions around early October 2026 and can change quickly.

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