Rich Privorotsky, head of trading at Goldman Sachs' Delta-one, believes that global capital is being absorbed by both government financing and AI infrastructure investment.
Annual AI capital expenditure is projected to exceed $1 trillion, increasingly relying on debt market financing. Meanwhile, major economies continue to run massive fiscal deficits, with the public sector and AI competing for the same pool of capital.
This capital competition has begun to spill over into non-AI economies. Privorotsky points out that governments typically lack the incentive to proactively cut spending, so the adjustment pressure from higher real interest rates may fall more heavily on the private sector. He believes this may already be reflected in the downward revision of market valuations:
Stock price performance is weaker than what the EPS forecast revisions themselves can explain.
Consumer demand faces similar pressure. Privorotsky states in his report that fiscal stimulus has already been pre-empted, post-tariff inventory rebuilding is largely complete, and some demand has already been released. As more funds flow into data centers and AI infrastructure,
the financing, investment, and valuation environment for non-AI sectors may continue to be under pressure, and market differentiation will further widen.
