"While Wall Street seems to live and die on the slightest hints about the Federal Reserve's rate stance, Chairman 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 dot-com 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 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, and Microsoft showed they made a combined $78 billion in capital expenditures in the third quarter alone, up 89% from a year earlier."
Tech companies are committing massive capital to AI-related infrastructure that is supported by current earnings rather than speculative valuations. The Federal Reserve's modest rate moves are unlikely to alter large, long-term investment decisions for data centers, since those projects are based on expectations of productivity gains. Morgan Stanley projects AI hyperscalers will spend about $3 trillion through 2028, roughly half funded from cash flows. Alphabet, Meta, and Microsoft reported $78 billion in third-quarter capital expenditures, up 89% year-over-year, and announced plans for larger spending in upcoming years. Meta issued $30 billion in bonds to finance expansion, and Amazon intends continued aggressive capacity investments.
Read at Fortune
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