Fed Hike Changes AI Funding Story

Put aside, for just a moment, all the arguments about AI safety. Today’s decision by the Federal Reserve to raise interest rates may be a bigger issue for the AI sector in the short term. Long-term bond yields had already risen, of course. But the Fed’s action—pushing up short- and medium-term borrowing costs—seems sure to crimp the debt-fueled AI boom, particularly given the prospects that another rate hike is possible later in the year.

The most vulnerable to higher rates are surely small companies that have weak or no credit ratings but need to raise money, such as would-be neoclouds hoping to finance data center projects. Think Rum Group, which plans a big data center in Georgia for a deal with Anthropic but doesn’t have financing for the project yet. (For more on startups’ financing challenges, see here). But the ripple effects of higher interest rates will eventually affect everyone, including big tech firms spending a fortune to expand their data centers for AI.

Most of these—Amazon, Meta Platforms and Google—have already loaded up on debt, giving themselves a bit of a buffer. Just on Monday, Amazon sold 4.2 billion pounds of debt (about $5.7 billion), adding to the $67 billion raised in the first half of the year that had already nearly doubled its debt. Most of the bonds sold this year were fixed-rate debt, according to Amazon’s securities filings, which means Amazon won’t pay more in interest costs as rates rise. Google and Meta also issued debt to varying degrees. Still, at the rate these companies are spending, they’ll have to borrow more money again before too long.

Amazon’s borrowings, for instance, offset heavy capital expenditures and investments in both Anthropic and OpenAI, keeping its cash level flat at June 30, at $123 billion from where it was at Dec. 31. But since June 30, Amazon has poured another $21 billion into OpenAI, completing its $50 billion commitment. Analysts estimate Amazon will burn $10 billion in the second half, according to S&P Global Market Intelligence, and another $43 billion in the first half of 2027.

To be sure, these big tech companies are highly rated by credit agencies and will still be able to raise at better terms than smaller firms. But the ramifications of the Fed’s action can’t be understated. The cost of money just went up. The AI picture just got fuzzier.

OpenAI’s Ad Idea

OpenAI is trying out a new way to advertise via ChatGPT. It’s letting businesses sponsor AI agents to give consumers a way to dig deeper on a product.

The way this would work is that someone on ChatGPT who spots an ad for a product that interests them could start a conversation with a “business-sponsored agent” to get more details about the product.

Sounds interesting, but given all the problems OpenAI has had with agents going rogue, isn’t there potential for these sponsored agents to go off the reservation in ways that might embarrass the advertiser? Just imagine if the agent starts telling a consumer the truth about a product! (Read more here.)

Amazon Gives Warehouse Workers a Pay Raise

Amazon is going all out to make working in its warehouses and related areas more appealing. The e-commerce firm said Wednesday it was raising pay for “U.S. core operations employees”—Amazon jargon for people working in its warehouses and shipping centers—to a minimum of $20 an hour.

Average pay will reach “nearly $24 per hour,” Amazon said, although as the company said a year ago that average pay for these workers was increasing to “more than $23 per hour,” it’s unclear how much of a raise we’re talking about.

Still, Amazon is introducing new perks: Workers will now get 20% off groceries bought in Whole Foods stores and 10% off for Whole Foods online purchases. That’s not a bad deal!

• South Korean memory chipmaker SK Hynix is in talks with Intel about a deal to manufacture memory chips on U.S. soil for the first time, Reuters reported.

• Nvidia CEO Jensen Huang plans to attend President Donald Trump’s state dinner for Chinese leader Xi Jinping in Washington next week, The Information reported.

• Stablecoin issuer Circle officially launched the Arc blockchain, which will support the trading of stablecoins, tokenized equities and other assets.

Today on The Information’s TITV

Check out today’s episode of TITV in which we unpack our reporting on Apple exploring a return to server products.