Having the bond market regulate the AI trade is a big positive, says Ed Yardeni

Bond vigilantes are currently playing a vital role in regulating the AI ecosystem by scrutinizing credit quality and efficiently allocating capital. Ed Yardeni, President of Yardeni Research, observes that the bond market is proactively assessing risks in AI-related credits—such as those involving CoreWeave—preventing a potential bubble by forcing "dodgier" credits to pay higher premiums. While concerns exist regarding slowing growth rates for companies like Anthropic, the broader economic outlook remains bolstered by "Fabulous Earnings Momentum" (FEMO). Despite potential headwinds from sticky inflation and projected Federal Reserve rate increases, corporate earnings remain exceptionally strong across both AI and non-AI sectors. Cloud revenue growth and backlogs from major players like Amazon and Meta serve as critical metrics for the sustainability of the AI buildout, supporting a long-term S&P 500 target of 10,000 by the end of the decade.