13 April 2026
A new analysis from the Federal Reserve Bank of St. Louis sheds light on how U.S. corporations have historically funded innovation — and what the AI investment boom may mean for that financing model going forward.
Economists Juan M. Sánchez and Masataka Mori studied publicly traded, U.S.-incorporated non-financial firms from 1979 to 2024 using S&P Compustat data. Their central finding: companies with higher research and development (R&D) intensity tend to hold more cash, because innovation is inherently intangible, risky, and hard to finance externally.
Between 1990 and 2010, corporate cash holdings rose dramatically — the mean cash ratio increased by 9.1 percentage points. Prior research has tied this buildup directly to rising R&D intensity, suggesting firms were effectively stockpiling funds to self-finance future innovation.
But the trend has recently reversed. From 2020 to 2024, the mean cash ratio fell by 3.4 percentage points, and the drop was even steeper among the most cash-heavy firms (the 90th percentile fell by nearly 15 percentage points). At the same time, R&D intensity has been climbing sharply — particularly since 2013 — as companies pour resources into artificial intelligence.
The authors note that tech giants, or "hyperscalers," have announced AI investment plans at unprecedented scale. The pattern they observe is consistent with a scenario in which firms accumulated cash over prior decades precisely to fund this next wave of innovation — and are now spending it down.
Looking ahead, the St. Louis Fed economists warn that if AI-related investment continues at its current pace, companies may exhaust their internal liquidity buffers and need to turn to external financing. Given that innovation is difficult to use as collateral, this shift could create meaningful financing challenges in the years to come.
Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or the Federal Reserve System.
Source: "Financing R&D Spending: The Role of Corporate Cash Holdings," by Juan M. Sánchez and Masataka Mori, Federal Reserve Bank of St. Louis — On the Economy Blog, March 12, 2026. [Read the original article here.](https://www.stlouisfed.org/on-the-economy/2026/mar/financing-rd-spending-role-corporate-cash-holdings)
