The Future Became More Expensive: AI, Higher Rates and the Burden of Proof
Higher interest rates make distant cash flows less valuable today, even as some of the world’s largest companies continue to commit extraordinary amounts of capital to artificial intelligence and related infrastructure.
Those developments are not necessarily contradictory. Companies capable of earning attractive returns on invested capital may continue to find new investment worthwhile as financing costs rise. But a higher cost of capital raises the hurdle those investments must ultimately clear—and the evidence investors should require along the way.
In our 3Q2026 Review & Outlook, we examine that question through the lens of capital allocation, cash generation, financial flexibility and dividend growth.
Watch
The Dividend Corner
In this quarter’s episode of The Dividend Corner, Portfolio Manager Nick Puncer explores how higher interest rates change the economics of distant cash flows at a time of extraordinary investment in AI infrastructure. The discussion follows capital from investment to cash generation and considers why Bahl & Gaynor views dividend growth as one recurring piece of evidence about a company’s underlying economic engine.
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3Q2026 Investor Letter
For readers who want to explore the argument in greater depth, our Investor Letter examines how higher discount rates increase the hurdle for long-duration investments, why capital expenditure should ultimately translate into observable economic results, and how our emphasis on dividend growth informs the types of uncertainty we are willing to accept as investors.
We do not need to conclude that today’s large capital investments will prove unsuccessful. Rather, our process emphasizes businesses where prior investment has already produced observable evidence—including durable demand, healthy cash generation, financial flexibility, and the capacity to return growing cash to shareholders while continuing to invest.
Review
3Q2026 Review & Outlook Presentation
For a more visual overview, the accompanying presentation distills the quarter’s discussion into a concise series of exhibits examining the relationship between discount rates, capital investment, cash generation and observable evidence.
The presentation includes our framework for thinking about the business economic cycle—from sources and uses of capital through cash generation and capital allocation—as well as the role financial flexibility and dividend growth can play in evaluating a business over time.