U.S. economy hits pivotal milestone: Spending on data centers and other hardware tops housing

Key Points:

• Hyperscale tech companies are rapidly increasing AI infrastructure investments, expected to reach $1 trillion annually soon, surpassing residential investment spending in the US economy.
• Inflation-adjusted spending on information processing equipment rose 51% to $752 billion since early 2021, while private residential fixed investment fell 18% to $748 billion amid higher borrowing costs and mortgage rates near 7%.
• AI investments have shown less sensitivity to rising interest rates, with companies like Alphabet issuing significant debt despite negative cash flow, driven by expectations of high returns on AI infrastructure.
• S&P Global projects hyperscaler capital expenditures will exceed $1.3 trillion by 2027, growing faster than revenue and potentially causing overcapacity, with negative operating cash flow expected through 2027.
• The surge in AI spending has sparked political backlash and contributed to higher consumer costs, while the housing market remains constrained by high borrowing costs, limited supply, and declining builder sentiment.