First, What Are Long-Term Interest Rates?

Long-term interest rates—such as the yield on the 10-year U.S. Treasury bond—measure the price of borrowing money for extended periods of time. They’re typically shaped by:

• Expectations of inflation
• Central bank actions (such as Fed rate decisions)
• Government debt issuance
• World economic outlook

And whereas short-term rates are directly related to central bank actions (such as the Fed Funds Rate), long-term rates capture what investors believe about the future: growth, inflation, and risk.

Why Do Long-Term Rates Matter to Growth/Tech Stocks?

Let’s begin with a investing fundamentals rule of thumb:

• The value of a stock is the present value of its future cash flows.
• Here’s where higher rates enter the picture:
• As interest rates rise, future cash flows are discounted more and more.
• That is, those future profits are less valuable today.

And growth/tech stocks—many of which have huge profits years from now—take the biggest hit.

So when long-term rates increase, the math of valuation begins to work against such companies.

Why Are Tech and Growth Stocks Particularly Sensitive?

1. They’re Priced for the Future

Most growth stocks—picture companies like Tesla, Amazon, Nvidia, or high-growth SaaS companies—invest huge amounts today in expectation of grand rewards down the line.

Their valuations are constructed on the premise that:

• They’ll continue growing fast for years to come.
• Profits in the future will support lofty prices today.

But when interest rates go up, those “big profits down the road” are discounted more, so their current value (and thus their stock price) is less.

2. They Tend to Depend on Inexpensive Capital

Startups and high-growth companies frequently borrow funds or issue equity to drive growth. Higher interest rates result in:

• Borrowing costs are higher.
• Venture capital disappears.
• Capitalists insist on profitability earlier.

This can compel companies to reduce expenses, postpone expansion, or increase prices, all of which can hamper growth.

Real-World Example: The 2022-2023 Tech Sell-Off

When inflation surged in 2022 and the Federal Reserve hiked interest rates aggressively, we witnessed:

• The 10-year Treasury yield jump sharply
• High-growth tech stocks tank, with many dropping 40–70% from peak

Investors switch into value stocks, dividend payers, and defensive sectors (such as energy, utilities, and healthcare)

It wasn’t that Meta, Shopify, and Zoom were doing poorly. It was that their future profits counted less in a higher-rate world.

But It’s Not All Bad News

1. Some Tech Companies Are Now Cash Machines

The big-cap tech giants—such as Apple, Microsoft, Alphabet—are now enormously profitable, cash-rich, and less dependent on borrowed cash. That makes them less sensitive to rate moves than smaller, still-rising tech names.

2. Rate Hikes Eventually Peak

When inflation levels off or the economy decelerates, central banks can stop or reverse rates, reducing pressure on growth stocks.

3. Innovation Can Outrun the Math

At times, the force of disruption is compelling enough to overcome increasing rates. For instance:

• The emergence of AI is allowing businesses to create efficiencies that fuel growth—even in an elevated-rate world.

Some tech infrastructure plays (such as Nvidia) can be treated as a utility, not a bet.

 What Should Investors Do?

Understand Your Exposure

Not all tech stocks are alike. A growthy, loss-making AI startup will act very differently from a cash-generation-rich enterprise software business.

Watch the Yield Curve

The slope of the yield curve (short term vs long term rates) will say a lot about what the market expects for growth and inflation. A steepening curve tends to be optimistic economically (favorable to cyclicals), but an inverted curve can portend issues down the road.

 Diversify by Style

An average portfolio could have both:

• Growth stocks (for long-term growth)
• Value/dividend-paying stocks (to provide cushions against rate shocks)

 The Bottom Line

Increasing long-term interest rates have the effect of gravity on growth stocks. The higher the rates, the greater the pull on valuations.

But this does not imply doom for tech. It means investors must:

• Recalibrate expectations
• Focus on quality
• And remember that not all tech grows in the same environment

Just as low rates fueled the rise of growth stocks over the past decade, higher rates are now reshaping the landscape. The companies that survive and adapt—those with real earnings, real products, and real cash flow—will come out stronger.