Fears of slow returns and skepticism stoked by AI models manufactured at a low cost by China’s DeepSeek have been dismissed by corporate America’s AI investment frenzy.
However, the Trump administration’s global trade war poses a threat to halt the growth in sectors ranging from software to energy.
Future financial reports from tech behemoths like Alphabet and Microsoft, as well as utilities that supply power to massive data centers like Vistra, will reveal whether or not the tit-for-tat tariffs between the United States and China are causing companies to reconsider their ambitious infrastructure plans.
In the face of uncertainty, their clients—which include media outlets, retailers, automakers, and airlines—are cutting back on their spending.
Analysts noted early indications of tech giants reducing data center leases and warned that this could have an impact on investments in AI tools.
Microsoft and Alphabet’s Google have preemptively reaffirmed their $155 billion capital expenditure plans for the year, which is almost half of the $320 billion analysts predict Big Tech will spend on AI this year.
But as supply chains are disrupted by tariffs, particularly in China, pressure is growing on tech companies.
The second-largest economy in the world, which is essential to the manufacturing of AI hardware, was not granted a 90-day tariff reprieve earlier this month.
If an exemption on electronics is removed, analysts predict that the 145% U.S. tariffs on Chinese goods will significantly raise the cost of data centers.
“A large portion of the data center equipment and electrical infrastructure are made outside of the United States.
Pat Lynch, executive managing director for data center solutions at commercial real estate services company CBRE, stated that there is frequently a shortage of this equipment and a high demand for it worldwide.
“Tariffs will likely make this more challenging, especially if foreign suppliers divert this equipment to other markets.”
The U.S. economy will be significantly impacted if AI spending declines.
Analysts at J.P. Morgan predicted in January that data center expenditures may boost the nation’s GDP by 10–20 basis points in 2025–2026.
Shares of the “Magnificent Seven”—a collection of ebullient stocks that have driven the market in recent years but have seen a $5 trillion decline in market value since peaking late last year—already bear some of the worry.
The AI chip behemoth Nvidia is down roughly 26% this year after a spectacular stock run over the previous two years that momentarily made it the most valuable company in the world.
About 20% of the value of Alphabet’s shares has been lost.
THE LONG GAME
There have been indications that businesses are delaying the expansion of their data centers.
Last month, analysts at TD Cowen reported that Microsoft had canceled projects that were scheduled to utilize two gigawatts of electricity in the U.S. and Europe over the last six months because of an excess of electricity.
Earlier this month, a senior Microsoft executive stated that while the business may slow down its ambitions, it would keep expanding capacity wherever demand existed.
“Any major new project at this size and scale requires agility and refinement as we learn and grow with our customers.
Planning is a multi-year, capital-intensive program.”
In a LinkedIn post, the executive stated, “This means that we are slowing or pausing some early-stage projects.”
Amazon.com postponed some commitments for new data center leases on Monday, according to Wells Fargo analysts.
The business said the delay was due to normal capacity management and had nothing to do with its expansion plans.
“It does appear like the hyperscalers (big cloud firms) are being more discerning with leasing large clusters of power,” the analysts stated in a note.
According to estimates provided by LSEG, Microsoft is expected to report its slowest sales growth in seven quarters.
According to Visible Alpha statistics, growth at Azure, the Microsoft Company best positioned to gain from AI, is expected to reach a level not seen in over a year.
Even if a declining dollar offers some help, Alphabet, Amazon, and Apple are also anticipated to post lesser growth.
Even while short-term returns are slow, some experts and investors contend that the long-term potential of AI warrants ongoing investment—a claim frequently made by tech leaders.
Andy Jassy, the CEO of Amazon, defended his company’s expenditures in AI earlier this month, claiming that they were essential to staying competitive in the fight to control the technology.
“The market has massively discounted the near-term spending for AI and it is wrong,” stated Eric Schiffer, CEO of the private equity firm Patriarch Organization, who has been investing more in the “Magnificent Seven” in recent months.
“The big tech companies can’t afford to fall behind in the AI race. I predict that within a year or 18 months, hyperscalers will begin to yield more significant profits.
