AI budgets face cuts as cost of capital climbs, expert tells CFOs

AI spending is heading for a haircut, and the mechanics are simple: borrowing costs are rising and finance chiefs can no longer fund projects without proving returns. Mark Williams, a master lecturer at Boston University's Questrom School of Business and a former bank examiner for the Federal Reserve Bank, delivered that warning to a group of CFOs gathered in New York City on Tuesday evening.

"I think it's going to be reduced," Williams said of AI spending, arguing that a more difficult financing environment will bring greater scrutiny to investment decisions. He spoke during a fireside chat at a Fortune Modern CFO dinner, sponsored by Deloitte.

His comments fit 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 letting uncertainty paralyze investment.

"If we do nothing, then we're going to lose our competitive edge," he said.

What should CFOs change now?

Williams laid out a concrete discipline checklist for funding AI initiatives:

• Set explicit measures of success or failure for each project
• Tie project spending directly to financial results
• Consider shorter-term financing rather than automatically borrowing long term

The message is not retreat. It is selectivity. Williams predicts finance chiefs will be more discerning about where they place their bets, keeping strong AI projects alive while weaker ones lose funding.

Why does uncertainty shrink the investment pool?

Post-midterm election regulatory uncertainty adds a second layer of pressure, Williams explained. Greater uncertainty lowers growth assumptions, which reduces a project's net present value — and fewer investments clear the financial bar. It is the same arithmetic a CFO runs on any project; uncertainty simply lowers the numerator while higher rates raise the denominator.

The pressure will not fall evenly across the AI industry. Williams described a divide between highly rated technology companies and lower-rated AI borrowers. Weaker credits face greater financing pressure. Companies with stronger balance sheets can keep investing, while more leveraged businesses may be forced to reconsider their plans.

How far should preparation go beyond budgets?

Williams pushed finance leaders to look past investment lines. He suggested they "stress-test" accounts receivable and consider whether customers could still pay if economic conditions weakened. He also questioned whether consumer spending would continue supporting the economy through the holiday season.

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.

When asked what CFOs should do before year-end, Williams was blunt: "I think you should assume the cost of capital is going up."

His closing advice targeted the people, not just the spreadsheets. "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."

For corporate America, the practical takeaway is a two-track winter: strong-balance-sheet companies keep funding AI while leveraged borrowers trim, and every project now needs a measurable payoff to survive the budget review.