Last week’s market turmoil – as an estimated $1.8tn in market value was wiped out in a global tech sell-off – suggests the trade is hitting a turning point as investors weigh the promised payoff in artificial intelligence against its rapidly rising cost.
Even as the AI race intensifies, four of the biggest US technology companies together have forecast capital expenditures that will reach about $650bn in 2026 — a mind-boggling tide of cash earmarked for new data centres and all the gear housed within them, according to a Bloomberg report.
The spending planned by Alphabet, Amazon.com, Meta Platforms and Microsoft – all in pursuit of dominance in the still-nascent market for AI tools, is a boom without a parallel this century. Each of the companies’ estimates for this year is expected either near or surpass their budgets for the past three years combined. They would set a high-water mark for capital spending by any single corporation in any one of the past 10 years, according to Bloomberg data.
The search for a comparison to the spending projections — which came as the four reported earnings in the past weeks — requires going back at least as far as the telecommunications bubble of the 1990s, and perhaps to the build-out of the US railroad networks in the 19th century, or the postwar federal investments in interstate highways.
The ever-larger numbers — in total, an estimated 60% increase from a year ago — mean yet another acceleration in the wave of data centre construction taking place around the world and in the financing boom required to pay for all of it.
The sprint to build these sprawling facilities, which hold racks of humming servers powered by expensive processors, has touched off an unprecedented level of borrowing and pinched energy supplies.
It also raises the risk that expenditures by a narrow set of affluent companies, already accounting for a rising share of economic activity in the US, could distort big-picture data such as construction spending, gross domestic product, durable goods and employment reports, potentially making the overall economy look healthier than it actually is.
As the numbers push higher, what is still unclear is whether the companies will all be able to execute on their lofty ambitions. There’s also the question of how they will afford it. Meta and Google, whose profit mainly comes from digital advertising; Amazon, the largest online retailer and cloud-computing provider; and Microsoft, the biggest seller of business software, are each dominant in their industries and have ample cash cushions.
Their willingness to plough huge chunks of that cash into an AI-fuelled future means those reserves, and investors’ patience, will be tested. For months, investors have been growing increasingly anxious about how AI will potentially transform the economies. Last week, those concerns suddenly spilled over into the stock market.
The culprit was AI startup Anthropic, which released new tools designed to automate work tasks in various industries, from legal and data services to financial research. The announcements sparked fears that the innovations would doom countless businesses.
In response, investors dumped a broad range of stocks, and even with the end-of-week rebound, the damage was severe. When ChatGPT was launched in November 2022, anything linked to the AI theme surged – from chipmakers and software firms to raw-materials suppliers and even companies most exposed to AI disruption.
That lifted equity and debt markets to levels that have drawn bubble warnings from regulators and investors. Mind-boggling global AI spending spree is projected to cross $2.5tn in 2026, a 44% increase year-over-year. But as of now, the global AI trade is starting to fracture as soaring capex, rising debt loads and doubts over who will profit from the technology force investors to draw sharper lines.