Multi-Asset Perspectives: AI’s Rising Fuel Bill

Higher financing costs are raising the proof required from AI-driven growth and favoring assets with visible earnings, strong cash flow, and less dependence on easy money.

• AI demand remains strong across chips, data centers, power, software, infrastructure, and capital, but companies must convert spending into revenue, profit, and cash flow as borrowing, energy, and labor costs rise.
• Long-term government bond yields remain elevated because of economic growth, fiscal deficits, higher energy costs, corporate capital raising, and AI-related investment; Voya expects inflation data to improve in 2027 as fewer PCE categories exceed 3% and wage pressures moderate.
• U.S. large caps remain preferred because technology and AI leaders have stronger sales growth, earnings power, and self-funded growth, but market breadth is narrow: only about half of S&P 500 companies were above their 200-day moving averages in late September, while roughly three-quarters fell during the month.
• The earnings contribution is concentrated: expected 3Q26 S&P 500 net-income growth was 28% for the aggregate of matched companies versus 8% for the median constituent, while reported backlogs and remaining performance obligations for Microsoft, Oracle, Amazon, and Alphabet totaled about $2.36 trillion.
• U.S. small caps remain underweight because debt due in fiscal years 1–5 reaches 66% of Russell 2000 companies versus 49% for the Russell 1000, and public bonds represent 40% of Russell 2000 market capitalization versus 14% for the Russell 1000.
• International equities offer diversification only where their drivers differ from the U.S. AI cycle: Japan is preferred, Europe offers selective opportunities in defense, grids, energy security, and automation, and emerging markets combine Asian AI hardware with India’s domestic growth; fixed income favors intermediate U.S. bonds and higher-quality credit, while TIPS and non-investment-grade debt remain secondary or cautious positions.

Takeaway: Investors should favor U.S. large caps and selected Japan, infrastructure, energy-security, and income exposures, while demanding durable earnings growth, cash flow, and manageable refinancing risk before adding to small caps or crowded AI beneficiaries.