Good morning. Companies may need to rethink how much they spend on AI as financing costs rise and economic uncertainty grows. But pulling back too aggressively could leave them at a competitive disadvantage, finance expert Mark Williams told a group of CFOs gathered in New York City on Tuesday evening.
I had a fireside chat with Williams, a master lecturer at Boston University’s Questrom School of Business and a former bank examiner for the Federal Reserve Bank, during a Fortune Modern CFO dinner, sponsored by Deloitte.
“I think it’s going to be reduced,” he said of AI spending, arguing that a more difficult financing environment will bring greater scrutiny to investment decisions.
His cautionary concerns were part of a broader discussion about the post-midterm economic outlook, inflation, interest rates and risks across the AI investment ecosystem. Williams urged executives to prepare for higher capital costs without allowing uncertainty to paralyze investment.
“If we do nothing, then we’re going to lose our competitive edge,” he said.
For CFOs, that means being more disciplined about how they fund AI initiatives and evaluate their returns. Williams recommended having explicit measures of success or failure along with connecting project spending to financial results and considering shorter-term financing rather than automatically borrowing for the long term.
Post-midterm election, regulatory uncertainty adds another aspect to consider. Greater uncertainty can lower growth assumptions and reduce a project’s net present value, making fewer investments financially attractive, Williams explained.
The pressure won’t be evenly distributed across the AI industry. He described a divide between highly rated technology companies and lower-rated AI borrowers, with weaker credits facing greater financing pressure.
Companies with stronger balance sheets may be better positioned to continue investing, while more leveraged businesses could find themselves forced to reconsider their plans, he said.
That preparation should extend beyond investment budgets. Williams suggested finance leaders “stress-rest” accounts receivable and consider whether customers would be able to pay if economic conditions weakened.
He tied those risks to his broader inflation outlook. Persistent price pressures could keep borrowing costs elevated, raising the hurdle for new investments and challenging companies’ ability to generate sufficient returns.
“I think you should assume the cost of capital is going up,” he said when I asked what CFOs should do before year-end.
That preparation should extend beyond investment budgets. Williams suggested finance leaders analyze accounts receivable and consider whether customers would be able to pay if economic conditions weakened. He also questioned whether consumer spending would continue supporting the economy through the holiday season.
But his message is not to retreat from AI. Instead, he predicts finance chiefs will be more discerning about where they place their bets.
“Hold your chief risk officers close,” Williams said. “I think they’re going to be very useful for you in the next couple of months.”
Sheryl Estrada [email protected]
The post CFOs face a tough choice on AI spending as borrowing costs rise, expert warns appeared first on Fortune.
