Tech dollars flood into AI data centers
Big Tech is spending at a rate that’s never been seen, sparking boom times for companies scrambling to facilitate the AI build-out.
Why it matters: AI is changing the economy, but not in the way most people assume.
- AI needs facilities and machines and power, and all of that has, in turn, fueled its own new spending involving real estate, building materials, semiconductors and energy.
- Energy providers have seen a huge boost in particular, because data centers require as much power as a small city.
Stephan Feldgoise, co-head of M&A for Goldman Sachs, tells Axios.
Some of the greatest shifts in history are happening in certain industries,
“You have this whole convergence of tech, semiconductors, data centers, hyperscalers and power producers.
Zoom out: Companies that are seeking fast growth into a nascent market typically spend on acquisitions.
- Tech companies are competing for high-paid staff and spending freely on research.
- But the key growth ingredient in the AI arms race so far is capital expenditure, or “capex.”
Capital expenditure is an old school accounting term for what a company spends on physical assets such as factories and equipment.
- In the AI era, capex has come to signify what a company spends on data centers and the components they require.
- The biggest tech players have increased their capex by tens of billions of dollars this year, and they show no signs of pulling back in 2025.
The capex bonanza for data center growth is separate from the R&D that companies spend on chips and new AI technology.
Eric Hanselman, a chief analyst at S&P Global Market Intelligence, says :
R&D expenses are funding expanded investments in AI integration as well as the rising costs of training AI models,
He says,
As for capex, spending on the equipment needed to fill data centers has accelerated dramatically,
What’s next: At the Goldman Sachs Private Innovative Company Conference held in Las Vegas last month, bankers presented a slide that read: “For Big Tech, is Capex The New M&A?”
If the answer is yes, the worry is that data center spending fails to earn future investment returns. That will play out in the future.
Also in the future is the potential for acquisitions when capex spending eases. For now, Goldman’s Feldgoise believes that the data center build out is in its first phase. Larger-scale M&A is expected in phase two.
He says,
When winners emerge, they will start to consolidate,
Our thought bubble: The fortunes being spent today on data centers for AI are jaw-dropping, but tech leaders are actually worrying about spending too little.
Google CEO Sundar Pichai told analysts in August.
When you go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting for us here,
The bottom line: Tech CEOs view their investments in data centers as all-purpose bets on the future.
- If the AI bubble pops, a data center can easily be put to work fueling whatever the next big wave in tech turns out to be.
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Tech dollars flood into AI data centers, source
