Higher interest rates could absolutely deflate AI capex. Indeed, other than CIOs deciding en masse that AI doesn't actually save them money, it's possibly the only thing that could deflate the AI bubble. Higher rates decreases the availability of capital; the bulk of the marginal capital losses are in "risk-on" assets like (currently) AI investments; there goes the funding source that's been used to build all these data centers. It's very much like how the 1.75% increase in rates from 1999-2000 caused the dot-com bust, or the 4.25% increase in rates from 2004-2006 caused the 2009 crash, or the 5% increase in rates from 2022-2023 caused the last tech crash.

After the initial set of hostilities ended, the market largely shrugged off the Straight of Hormuz crisis. But now that it's 3 months later, the Straight is still not open, and if anything hostilities are intensifying, the market is finally starting to price in higher inflation and higher rates. That's why 10Y Treasuries have started creeping up almost to 5%, and GOOG has fallen 12% since its $400 high a couple months ago, and why MSFT is down more than 20% since its 2025 high. The memory chip makers are more exposed, with more of a bubble, and so they could potentially crash even harder if rates start to rise.