UBS: US Companies’ Capex Willingness Rebounds from Bottom, Further Rate Hikes May Have Limited Impact on Economy

The willingness for capital expenditure by U.S. corporations is rebounding from a low point, and the marginal drag of further rate hikes on economic growth may therefore be lower than historical experience.

UBS noted in a recent report that U.S. corporate investment has experienced a prolonged period of weakness, with the starting point of current capital expenditures significantly lower than in previous cycles. Against this backdrop, even if interest rates continue to rise, the additional suppressive effect on corporate investment may be limited.

At the same time, AI investment remains the key pillar of capital expenditure growth in the U.S. Over the past eight quarters, AI-related investment has grown by 26% year-on-year; however, more notably, after excluding the AI factor, corporate willingness to spend on capex is also starting to recover, indicating that the stabilization in investment may be spreading from the tech sector to broader corporate areas.

UBS believes that the accumulated need for maintenance and upgrades following a prolonged downturn, ample operating cash flow for businesses, and the potential diffusion of AI demand to other industries could all support a recovery in capital expenditure. This means that in assessing the impact of tightening policy, it is necessary to consider not just interest rate levels, but also the marginal changes in corporate investment.

Traditional Investment Remains Weak, Room for Rate Shock May Be Narrowing

According to the Federal Reserve’s FRBUS model rule of thumb, every 100 basis point increase in interest rates typically reduces economic growth by about 60 bps in the first year, with a cumulative drag of up to 150 bps over two years. This is also an important reference for the market when assessing the impact of further tightening.

However, UBS points out that the difference in this cycle is that corporate investment is not entering the tightening phase from a high level.

Over the past eight quarters, average year-on-year growth in U.S. private nonresidential fixed investment has been only 0.1%, far below the long-term average of 3.2%; residential investment has declined by an average of 2.0% year-on-year, which is also well below the long-term average of 2.2%. Apart from the tech sector, traditional U.S. investment has been weak for at least two years.

Therefore, with investment already at a low base, further interest rate hikes will still impose constraints, but the room to further depress corporate spending may be shrinking. The rate shock reflected in the FRBUS model has not become invalid; it’s just that the starting point of investment being healthier in historical periods is markedly different from the current situation.

Non-AI Capex Willingness Rebounds, Early Signs of a Turning Point in Investment

AI remains the strongest source of capex growth in the U.S. at present. Over the past eight quarters, AI-related investment has grown by 26% year-on-year, indicating that U.S. corporate investment is not experiencing a broad contraction but is highly concentrated in the AI sector.

However, UBS has observed that the willingness for capital expenditure outside the AI sector is starting to improve as well.

UBS compiled capex willingness indicators from 14 regional Fed manufacturing and services surveys and took the median. This indicator fell to the 3rd percentile in history after April 2025, but rebounded to the 36th percentile by August 2026.

This level is still not high, but the direction has shifted. Historical data shows that each point increase in this indicator, roughly equivalent to 1.2 standard deviations, usually corresponds to a 5.5 percentage point rise in capex growth. Although willingness does not equate to actual expenditure, it typically leads changes in capital spending.

Meanwhile, UBS stripped out the AI factor from fixed capital investment, excluding five categories of AI-related investment. However, the “non-AI” definition may still include some AI spending, so this change is better interpreted as a signal of stabilization in non-tech investment rather than a complete exclusion of AI effects.

Maintenance Needs and Ample Cash Flow Support Capex Recovery

The uptick in capital expenditure willingness may be partly a result of earlier postponed maintenance and upgrade needs finally being released. After at least two years of weak non-tech investment, some companies may find it hard to keep deferring equipment and facility upgrades, so the recent rebound in capex may not signal a full expansion but could first come from the restarting of necessary expenditures.

Corporate cash flow provides the funding foundation. Operating cash flow increased by $825 billion year-on-year, a 25% surge; meanwhile, except for major hyperscalers, the share of capex to operating cash flow remains near historical lows.

This shows that companies do not lack funds but rather have not converted more of their cash flows into investment spending. If willingness for capital spending continues to rise, ample internal cash flow could reduce corporate reliance on external financing, weakening the direct restraint of high interest rates on corporate investment.

Furthermore, if demand for AI infrastructure, software, and automation continues to spread to non-tech industries, the capex recovery may further broaden. Current data is still insufficient to prove this trend is fully taking shape, but the rebound of non-AI investment willingness from historic lows has already sent an early signal worth noting.