Markets Update October 2026 - Interest Rate Shock with Far-Reaching Effects: AI Financing Under Pressure, but Counterforces Are Growing

The recent rise in interest rates has had a significant impact on the capital markets. At their peak, U.S. Treasuries yielded 5.3%, which is 100 basis points higher than at the beginning of the year. At the index level, these figures were only partially reflected. Upon closer inspection, however, a clear divergence becomes apparent: market breadth narrowed noticeably, and small-cap stocks came under pressure, while high-quality companies demonstrated relative strength. In addition, rising interest rates fueled financing concerns in the AI segment.

These effects were most pronounced among so-called “neoclouds”—relatively small, specialized providers of AI computing capacity. Due to their high levels of debt and significant capital requirements, they are among the most financially vulnerable links in the AI value chain and react early to tighter financing conditions. Falling bond prices and rising credit default swap premiums signaled growing doubts about the financial viability of their ambitious investment plans.

Further adding to the uncertainty was the fact that revenue at Anthropic, one of the leading AI model providers, fell short of high expectations. This disappointment dampened valuation expectations ahead of the planned initial public offering: The latest estimates put the valuation at around 1.5 trillion USD, after investors had previously anticipated a valuation of about 2 trillion USD. In terms of company valuation, however, this would still be one of the largest IPOs in financial market history. Furthermore, growth remains exceptionally high, with revenue up by about 45% compared to the previous quarter. Although growth from the first quarter of the year to the second quarter was 146%, such a wide range is not uncommon for young companies. This slowdown is likely attributable not only to increased competition and declining revenue per unit of use but also to the suspension of accounts through which competing providers were training their own models using so-called model distillation. While forgoing this revenue weighs on growth in the short term, it could help protect Anthropic’s technological lead and strengthen its competitive position in the long run.

Recently, however, positive signs have been on the rise. Interest rate pressure has eased, and long-term interest rates have moved significantly away from their annual highs. The now-high nominal and, in particular, real yields have once again attracted more investors, a trend reflected in the brisk demand at recent bond auctions. At the same time, the ongoing earnings season continues to point to robust earnings growth and an intact AI investment cycle. Rising earnings had already largely offset the decline in valuations, thereby cushioning larger losses in the broad market indices. In summary, it can be said that supportive momentum is currently coming from both the interest rate and earnings sides. This argues against a sustained correction in the broad stock markets.