AI investment is already huge. Google, Trump show much more is coming.
The artificial-intelligence investment tsunami, already a seemingly unstoppable force in the world's biggest economy, is set to grow more powerful with new support from the White House and updated commitments from the industry's biggest players.
Alphabet, which is locked in an AI arms race to protect its Google search and ad sales businesses, will spend more than $85 billion on new projects this year, it said late Wednesday.
That tally is not only 13% more than it told investors to expect three months ago, it also would match the combined revenue of Pfizer and 3M last year. At the same time, it is a drop in the bucket compared with the increasing amount of investment, both in AI and related infrastructure, expected over the coming decade.
Just two years ago, Goldman Sachs pegged the 2026 investment plans from the four biggest hyperscalers—Google, Amazon.com, Microsoft, and Meta Platforms—at around $207 billion. It nearly doubled that tally to $405 billion last month in a forecast that may already be out of date.
The emergence of China's DeepSeek, an AI-powered chatbot reportedly developed at a fraction of the cost of its U.S. rivals, has paradoxically triggered an investment race to ensure America maintains its global leadership in the technology.
President Donald Trump, in fact, signed his AI Action Plan order Wednesday night, vowing that, 'from this day forward, it will be a policy of the U.S. to do whatever it takes to lead the world in artificial intelligence."
He is paring back rules from the Biden era that restricted high-tech exports, greasing the wheels for new data-center construction with looser environmental restrictions, and vowing to boost energy production to meet the enormous power needs the entire ecosystem will require.
At the same time, his tax and spending bill allows companies to fully write off the cost of new equipment and assets. That lowers the after-tax costs and leaves more money in corporate pockets, allowing for improving overall cash flows.
Given the amount of money that is expected to be spent over the back half of the decade, that could provide a tremendous boost to the balance sheets of tech, energy, and infrastructure companies. A recent McKinsey report pegged the collective outlay needed to meet AI demand at around $7 trillion by 2030. That would equate to around 21% of U.S. gross domestic product if the economy grows 1.8% each year for the next five years.
It would also be around three times the capital spending used in the railroad boom of the late 1880s, compared with the size of the economy at the time, based on data from investor and engineer Paul Kedrosky.
Google CEO Sundar Pichai underscored why Big Tech is so willing to pay when he spoke with analysts on a post-earnings call on Wednesday night.
'We are seeing significant demand for our comprehensive AI product portfolio," he said. 'Of course, this is all possible because of the long-term investments we have made in our differentiated full-stack approach to AI."
Even in a market where the best AI chips are hard to get—companies like Nvidia, Advanced Micro Devices and Micron Technology can't keep pace with demand—Pichai couldn't take the risk of holding back investment.
'It's a tight supply environment, and we are investing more to expand, but there is obviously a time delay between this additional investment will play out in future years," he said. 'But we are planning ahead and we are investing, and it's exciting to see the traction."
Google's biggest rivals will all report June quarter earnings next week. It is safe to say they are all likely to either confirm or increase their capital- spending forecasts.
Meta raised its projection, now at up to $72 billion, from $60 billion to $65 billion in April. Microsoft, which posts its fiscal fourth-quarter results on Wednesday, could tell investors to expect capital spending north of $100 billion for its coming financial year, according to Bank of America estimates.
Amazon, the leader in cloud computing, which sits at the heart of the data-center expansion, has already put a $100 billion target on its full-year capex in early February. That is a lifetime ago in the spending race calendar, so another increase is likely in the cards.
Write to Martin Baccardax at martin.baccardax@barrons.com
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