Toward a Market That Accepts High Interest Rates: How AI and National Capital Demand Are Changing Stock Investment Selection Criteria
Author: Former HF Lu
Joined the current Amundi in 1999. Engaged in pension asset management using quantitative strategies and market-neutral operations. From 2005 to 2012, worked at Asuka Asset Management, a pioneer in Japanese hedge funds with roots in Tudor Investment, where I was responsible for engagement investing aimed at increasing corporate value through dialogue with companies, and event-driven strategies focusing on corporate restructuring and other investment opportunities. Since then, I have been active as an individual investor, leading to the present.
If interest rates fall, AI-related stocks will rise again.
The more I feel tempted to expect that, the more I want to re-examine that premise.
It is precisely because expectations for AI are high that investment is increasing.
Because investment is increasing, power, semiconductors, construction, human resources, and capital are becoming necessary. If part of the high interest rates stems from this strong investment demand, there are limits to an investment strategy that only waits for interest rates to fall.
If you believe in the growth of AI, you must also incorporate the high cost of capital that this growth generates into your investment premise.
This does not mean that I am affirming all interest rate hikes.
While rising resource prices and supply constraints do put pressure on companies, there is also a side stemming from growth, where capital investment in anticipation of future profits strengthens the demand for funds.
My hypothesis is that “for a full-scale rise in stock prices, it must be proven that monetization is possible even with financing at high interest rates.”
What the market is trying to determine is not just whether a company is participating in the growth theme of AI. It is whether the company can raise funds even while accepting high real interest rates and turn that capital into profit.
In this article, I will expand on the interdependence between the state and AI companies, and consider why high interest rates may persist, what the Fed is trying to curb, and which companies can adapt to that environment.
What you will learn from reading this note
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How the connection between the state and AI companies leads to capital demand and interest rates.
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How to distinguish between cost-push and demand-pull, and how to perceive “good interest rate hikes.”
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The reason why high real interest rates may persist, even if the Fed’s goal is not to stop AI investment.
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The difference between “companies that can raise capital” and “companies that can leave profits for shareholders.”
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For five candidate companies, the confirmed track record and the conditions to look for next.