Corporate America’s artificial intelligence investment frenzy has shrugged off fears of slow returns and doubts fueled by AI models built cheaply by China’s DeepSeek. But a global trade war started by the Trump administration threatens to stall the boom across industries from energy to software.
Upcoming earnings reports from tech giants including Alphabet and Microsoft, as well as utilities that power massive data centers such as Vistra and Constellation Energy, will show whether tit-for-tat tariffs between the U.S. and China are forcing businesses to rethink their ambitious infrastructure plans.
Their clients, which range from retailers and media houses to airlines and automakers, are slowing spending amid the uncertainty. Analysts said this could hit investments in AI tools and pointed to early signs of tech giants pulling back on data center leases.
Pre-emptively, both Alphabet’s Google and Microsoft have reaffirmed their capital expense plans for the year that together total $155 billion – nearly half the roughly $320 billion analysts estimate Big Tech will pour into AI this year.
However, the pressure is mounting on tech companies as tariffs disrupt supply chains, especially in China. The world’s No. 2 economy is crucial to the production of AI hardware and was excluded from a 90-day tariff reprieve earlier this month.
Analysts say the 145% U.S. tariffs on Chinese goods will sharply increase data center costs if an exemption on electronics is rolled back.
“Much of the electrical infrastructure and data center equipment is manufactured outside of the U.S. In many cases this equipment is in short supply and demand is high globally,” said Pat Lynch, executive managing director for data center solutions at CBRE, a commercial real estate services firm. “Tariffs will likely make this more challenging, especially if foreign suppliers divert this equipment to other markets.”
A pullback in AI spending has big implications for the U.S. economy.
J.P. Morgan analysts estimated in January that spending on data centers could contribute between 10 and 20 basis points to the country’s economic growth in 2025-2026.
Some of the concern is already baked into shares of the “Magnificent Seven” – a group of high-flying stocks that have powered the market in recent years but have lost around $5 trillion in market value since hitting a peak late last year.
AI chip giant Nvidia, whose blistering stock rally over the past two years briefly turned it into the world’s most valuable firm, is down about 26% this year. Alphabet stock has lost about 20% of its value.
LONG GAME
There have been signs that companies are slowing their data center build-up. TD Cowen analysts said last month that Microsoft had abandoned projects set to use 2 gigawatts of electricity in the U.S. and Europe in the last six months due to an oversupply.
A senior Microsoft executive said earlier this month that the company might adjust the pace of its plans, but it would continue to grow capacity wherever there was demand.
“Planning is a multi-year and capital-intensive program … any significant new endeavor at this size and scale requires agility and refinement as we learn and grow with our customers. What this means is that we are slowing or pausing some early-stage projects,” the executive said in a LinkedIn post.
On Monday, Wells Fargo analysts said Amazon.com had delayed some commitments around new data center leases – a move the company said reflected routine capacity management and no changes to its expansion plans.
“It does appear like the hyperscalers (big cloud firms) are being more discerning with leasing large clusters of power,” the analysts wrote in a note.
Microsoft is set to post its slowest revenue growth in seven quarters, according to data compiled by LSEG. Growth at Azure, the Microsoft business best-positioned to benefit from AI, is set to hit a more than one-year low, Visible Alpha data showed.
Alphabet, Amazon and Apple are also expected to report slower growth, even as a weaker dollar provides some support.
Still, some investors and analysts say the long-term promise of AI justifies continued spending, even if short-term returns are slow – an argument commonly offered by tech executives.
Earlier this month, Amazon CEO Andy Jassy defended his company’s AI investments, saying it was necessary to remain competitive in the race to dominate the technology.
“The market has massively discounted the near-term spending for AI and it is wrong,” said private equity firm Patriarch Organization’s CEO, Eric Schiffer, who has increased his exposure to the “Magnificent Seven” in the past few months.
“The large tech players cannot afford to lose the AI race. I think you will start seeing more substantial returns from hyperscalers in one year to 18 months.”
(Reporting by Aditya Soni in Bengaluru)
