While Wall Street seems to live and die on the slightest hints about the Federal Reserve’s rate stance, Chair Jerome Powell doesn’t think the tech giants behind the AI boom will be swayed by incremental moves in monetary policy.
After the Fed cut rates by another 25 basis points on Wednesday, Powell noted the AI spending explosion is supported by actual earnings, unlike the dotcom bubble. As a result, borrowing costs are less of an issue.
“I don’t think the spending that happens to build data centers all over the country is especially interest-sensitive,” he said. “It’s based on longer-run assessments that this is an area where there’s going to be a lot of investment that’s going to drive higher productivity and that sort of thing.”
Powell added that companies are “making money in building them—it’s not about 25 basis points here or there.”
In fact, Morgan Stanley has estimated the so-called AI hyperscalers plan to spend about $3 trillion on data centers and other infrastructure through 2028, with about half that amount likely coming from cash flows.
Right on cue, earnings reports late Wednesday from Alphabet, Meta Platforms,[/hotlink] and Microsoft showed they made a combined $78 billion in capital expenditures in the third quarter alone, up 89% from a year earlier. And the spending will speed up.
Google said its capital expenditures for this year would be $91 billion to $93 billion, up from a prior view of $75 billion to $85 billion and the $52.5 billion spent in 2024.
Meta said investment will grow “notably larger” in 2026 after nearly doubling this year to $72 billion. The social media giant also sold $30 billion in corporate bonds this week to help feed the spending spree, despite spooking investors about the additional debt it’s taking on.
And on Thursday, Amazon CEO Andy Jassy said the company will “continue to be very aggressive in investing capacity” because demand is strong enough to support it. “As fast as we’re adding capacity right now, we’re monetizing it.”
Similarly, Microsoft said the tens of billions of dollars in recent spending are still not enough to satisfy the enormous demand for AI and related services.
“I thought we were going to catch up,” CFO Amy Hood said. “We are not. Demand is increasing. It is not increasing in just one place. It is increasing across many places.”
The tech giants are also borrowing from private credit. UBS recently estimated at least $50 billion in private credit has been flowing to AI each quarter for the past three quarters. That’s about two to three times what public credit markets are providing.
All that investment is moving the needle on the U.S. economy. Powell acknowledged as much on Wednesday, and JPMorgan recently estimated AI-related capex contributed 1.1 percentage points to GDP growth in the first half of this year, outpacing consumer spending as a growth driver.
The nature of AI spending is also evolving and will continue to be felt across the economy, according to JPMorgan global market strategist Stephanie Aliaga.
“Official data primarily reflect the first phase of AI investment, emphasizing chips, servers, and networking equipment,” she said in a note last month. “This next phase is targeting supporting infrastructure such as power plants and grid upgrades, which can take years to plan, permit, and build. Early signs of this phase are emerging, but the full impact is likely ahead.”
