Chamath Palihapitiya, a prominent venture capitalist, has warned that a 10-year bond yield of 5.5% to 6% could severely impact businesses reliant on financing spreads, including those in the AI sector. He made these remarks during an episode of the All-In Podcast that aired on Friday. Palihapitiya emphasized that the risk is not specific to AI but is tied to broader economic factors such as debt-to-GDP levels in Western economies.
Palihapitiya suggested that policymakers should focus on managing deficits to prevent the 10-year yield from reaching critical levels. He cautioned that large spending proposals could push the yield higher, triggering a negative cascade across the economy. A more measured approach, he argued, would involve cutting waste to draw a favorable response from the bond market.
The financing spread, which is the premium borrowers pay over a benchmark rate like the 10-year Treasury yield, is a critical concern. When this yield rises, the cost of capital increases for businesses that rely on longer-term financing. Palihapitiya described this exposure as an Achilles’ heel, a weak point that could undermine otherwise strong businesses. The 10-year Treasury yield recently hit 5.34%, its highest level since 2002.
In a worst-case scenario, Palihapitiya believes that large technology companies such as Microsoft Corp. (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta Platforms Inc. (NASDAQ:META), and Nvidia Corp. (NASDAQ:NVDA) would need to step in to support the sector during a potential one- or two-year correction.