First Eagle Global Value Team: How the AI Capex Cycle Is Squeezing the Market and Creating Bottom-Up Opportunities
The First Eagle Global Value Team argues that the artificial intelligence (AI) capital expenditure cycle is pushing up real interest rates and squeezing market breadth, causing underperformance in non-AI assets. They warn of fiscal deficits and sovereign debt risks, recommending a bottom-up approach focused on healthcare, housing, and software sectors whose valuations have been de-rated by rising capital costs, as well as inexpensive international equities.
In its Q3 2026 Market Overview, the Global Value Team at First Eagle Investments presented a core thesis: the artificial intelligence (AI) capital expenditure cycle is "sucking the oxygen out of the market," pushing up real interest rates, and weighing on other assets within the traditional 60/40 portfolio. The team believes this dominance should influence expectations for market performance going forward.
The mechanism supporting this argument lies in the fact that massive capital expenditures related to AI construction not only drive up input costs but also lead to a severe narrowing of market leadership. Data shows that while the NYSE FANG+ Index surged 13.1% in the third quarter, the S&P 500 Index rose only 2.3%, the MSCI EAFE Index advanced 0.8%, and the Bloomberg Global Aggregate Index fell 3.5%. This divergence indicates that behind the positive surface performance of benchmark indices, losers outnumber winners.
The team points out that currently record corporate profit margins are supported by US fiscal deficits (accounting for 6% of US GDP), low US household savings rates, and US private nonresidential investment reaching dot-com bubble levels. However, they warn that historically, the emergence of transformative technologies has often been followed by sharp corrections after periods of overinvestment; frictions are already emerging in the data-center narrative, with rising financing costs and slower permitting squeezing marginal economic benefits.
Regarding macro risks, First Eagle specifically highlighted the yield on 10-year US Treasury bonds rising to a 24-year high of nearly 5.3%, and sovereign debt concerns reflected by France's borrowing rate approaching 5%. They believe that although the market appears expensive from a top-down perspective, selective opportunities may exist from a bottom-up view in sectors that have de-rated due to rising capital costs—such as healthcare, housing, and software—as well as international stocks that remain cheap relative to US equities.