An eye-popping ascent in bond yields is raising alarm on Wall Street that the artificial intelligence trade could see some new financial pressure. The 30-year U.S. Treasury yield hit its highest level in 19 years on Tuesday, topping the 5.33% level. The trend spread overseas: Japan's 10-year bond yield touched three-decade highs , while the 30-year bond yields from Germany and France rose to levels not seen since 2011 and 2008, respectively. Rising bond yields have been tied to concerns about persistent inflation and the growing U.S. debt load. Investors are worried that elevated yields could hamper what has become a key driver for the U.S. stock market in recent years: the artificial intelligence buildout. Companies have committed billions of dollars to standing up AI data centers and other hardware needed to power the technology. Several stocks in the AI trade have soared on the promise of posting ultrahigh earnings years from now as the technology becomes an essential part of corporate output. But when interest rates rise, the value of those forthcoming earnings takes a hit. And if companies are borrowing money to fund their AI projects, lofty rates mean they have more of a hole to dig themselves out of before they can start seeing a return on their investment. "Rising bond yields increase the discount rate at which future growth is being priced at today," said Matthew Bartolini, global head of research strategists at State Street Investment Management. "If rates rise significantly, and stay there, it could impair longer duration growth equities that have the majority of their high growth forecasts further out on the horizon." In the first stage of the AI capital expenditure surge, major hyperscalers and technology giants put existing capital to work to fund projects, Bartolini said. Later on in the cycle, these companies have leaned on debt markets to raise the required sums to fund buildouts, he said. Given that shift, these companies' financials are exposed to fluctuations in bond yields, according to the strategist. When yields increase, the borrowers could face rising debt service costs and report lower cash flows, he explained. Small players face 'existential' threat The entire sector can take a beating as AI data center projects become harder to begin in the face of increasing borrwing costs, according to Gil Luria, head of technology research at D.A. Davidson. But some names could attract more scrutiny than others, he said. Megacap tech names like Microsoft and Amazon may be insulated given that they have diversified businesses and a history of strong returns on investments, Luria said. On the other hand, peripheral plays like CoreWeave or Oracle , which lean more on debt, may be put under the microscope, he said. "For them this is more existential, because they're not getting very good returns and their cost of debt is very high," Luria said. "Therefore, every little change in interest rate could impact their ability and plans to build more data centers." Rising yields sent technology stocks into the red across the board on Tuesday. The Nasdaq Composite slid 1.3%, making it the worst-performing of the three major indexes. The VanEck Semiconductor ETF (SMH) dropped around 4.1%, siganling the outsized pain felt by chipmakers. The Roundhill Generative AI & Technology ETF (CHAT) tumbled 5.7%, while Global X Artificial Intelligence & Technology ETF (AIQ) lost 2.3%. SMH 1D mountain SMH, 1-day Could there be a bubble popping? At Ned Davis Research, clients have wondered if AI is a bubble and, if so, whether it could be popped by rising rates. A historical analysis from Joe Kalish, the firm's chief macro strategist, found that all of the five major market bubbles in the last century had both yields and policy rates rising into their peaks. Fed funds futures traders believe the central bank could hike rates this year for the first time since 2023. However, even if borrowing costs go up, Kalish said it would still likely be below levels seen around the global financial crisis or the dot-com bubble. Because of that, these increases may not push companies to significantly curtail their spending, he said. In other words: "One, 25-basis-point increase is probably not going to derail the financing effort that's going on," Kalish said. State Street's Bartolini said valuations for companies with growth expected far in the future could struggle in an environment with higher yields. Still, he cautioned that doesn't mean the whole AI trade is at risk of melting down. "The bigger question is whether earnings growth ultimately validates the massive wave of AI investment," Bartolini said. "As long as profits continue to grow rapidly, strong fundamentals can offset some of the headwinds from higher rates."