Journal Article

Financing Artificial Intelligence: Cash, Debt, and Corporate Investment

Abstract: How is the artificial intelligence (AI) investment boom being financed? We study the relationship between corporate cash holdings, investment, and financing during the AI era and compare it with previous technological transformations. We document two main findings. First, the association between current cash holdings and future investment is substantially stronger in the AI era than during the personal computer and internet eras, driven primarily by the relationship between cash holdings and R&D investment. Second, the AI investment boom is concentrated among a small group of large technology firms—the hyperscalers—whose cash-to-assets ratio declined from 35% in 2018 to 16% in 2026 while their investment-to-assets ratio nearly doubled. R&D led the initial investment expansion, while capital expenditures have driven its more-recent acceleration. The financing of this expansion differs sharply across firms. Data-center builders have combined a rapidly growing operating cash flow with lower payouts relative to internal resources and, increasingly, debt issuance to finance a large investment expansion. Semiconductor producers, in contrast, have experienced sufficiently strong growth in their operating cash flow to finance investment while increasing shareholder payouts and cash accumulation and reducing net debt. These findings show that the AI investment boom is associated not only with a reallocation of corporate cash toward investment, but also with sharply different financing needs across the AI supply chain.

JEL Classification: E22; G31; G32; O33;

https://doi.org/10.20955/r.2026.13

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2026-11-10

Volume: 108

Issue: 13

Pages: 1-20