Chris Wood warns that only an AI implosion could lure foreign capital back to India

The global investment map is being redrawn at breakneck speed. From Seoul to Taipei, massive AI‑related chip spending is pulling billions of dollars into South Korea and Taiwan, while U.S. Treasury yields are inching toward that dreaded 5‑percent ceiling. Add a bruised rupee, lingering worries over Indian IT services, and you’ve got a perfect storm for foreign investors.

In an exclusive chat with Moneycontrol, Chris Wood, Jefferies’ Global Head of Equity Strategy, tried to make sense of the chaos. He said the Fed’s recent rate hike was “expected now, but the real surprise was how calm the bond market stayed.” The 10‑year Treasury yield, he noted, is the world’s most watched price. If the Fed had kept rates unchanged, the yield would likely have surged above 5 %, a scenario that could have slammed equity markets.

“We’re in a holding pattern right at the 5 % line,” Wood explained. That stability, he argued, bought the market a little breathing room, but the pressure is still there.

Across the Pacific, the United States stock market has been riding a wave of robust earnings, largely powered by the AI capital‑expenditure (Capex) cycle. Tech firms that design and sell chips are seeing profits soar up front, while the hyperscalers – the giant cloud providers – are financing their data‑centre build‑outs with a mix of cash and debt. “The AI Capex cycle is front‑loaded in America, which is good for earnings right now,” Wood said.

Yet the picture isn’t all sunshine. The hyperscalers are now leaning heavily on borrowing, issuing investment‑grade corporate bonds at roughly 5.5 % and keeping many data‑centre leases off their balance sheets. “That creates a direct rivalry with the Treasury for funding,” Wood warned. If the AI spending spree stalls, the debt load could trigger a “major credit event,” he added.

He predicts hyperscaler AI Capex could climb to nearly $1 trillion next year, up from about $700 billion today. Those numbers are staggering, and as long as the market believes the spending is justified, the semiconductor boom can keep rolling. The risk, however, lies in the moment investors start doubting whether the giants will earn a sensible return on such massive outlays.

“At some point, something’s got to give,” Wood said, noting that the easy money of the first three years – when hyperscalers used free cash flow – is fading. “If you were lucky enough to own semiconductor stocks during that rally, it would make sense to take some profits now.”

Turning to India, Wood acknowledged that the country still boasts one of the strongest structural growth stories among emerging markets. Private‑sector capex is finally showing signs of life, credit growth is picking up, and domestic mutual‑fund inflows remain healthy. But the small‑ and mid‑cap segment is where he sees the most attractive opportunities, even as “equity supply” is beginning to cap the broader index.

“Foreign money is being lured to AI and semiconductor hubs,” he summed up. “Unless there’s a sudden AI implosion that forces a reset, we’re unlikely to see a massive repatriation of capital back to India.”

In short, the AI boom is a double‑edged sword: it fuels profit‑driven rallies now, but the very scale of spending and debt could sow the seeds of a future correction – a scenario that would eventually open the door for capital to drift back into markets like India.