CFOs face a tough choice on AI spending as borrowing costs rise, expert warns

Good morning. Companies may need to reconsider their AI spending as borrowing costs rise and economic uncertainty increases, according to finance expert Mark Williams. Speaking during a Fortune Modern CFO dinner in New York City, Williams warned that reduced financing will bring more scrutiny to investment decisions. He cautioned that a more difficult financing environment will leave firms at a competitive disadvantage if they pull back too aggressively.

Williams urged CFOs to prepare for higher capital costs, but not to allow uncertainty to stifle investment. He advised having clear measures of success and connecting project spending to financial results, and suggested considering shorter-term financing instead of long-term loans. Post-midterm election, regulatory uncertainty adds another layer to consider, potentially lowering growth assumptions and reducing project net present value, making fewer investments financially attractive.

The impact on the AI industry won't be evenly distributed, with weaker credit borrowers facing greater financing pressure. Companies with stronger balance sheets may continue investing, while more leveraged businesses could reconsider their plans. In addition to investment budgets, Williams suggested finance leaders stress-test accounts receivable and assess customers' ability to pay if economic conditions weaken.

Williams emphasized that CFOs should not retreat from AI but rather become more discerning about where to place their investments. He stressed the importance of having strong chief risk officers to navigate the upcoming challenges.