The A.I. Spending Frenzy Is Propping Up the Real Economy, Too

It’s no secret by now, as investors await an earnings report on Wednesday by the chip behemoth Nvidia, that optimism around the windfall that artificial intelligence may generate is pumping up the stock market.

But in recent months, it has also become clear that A.I. spending is lifting the real economy, too.

It’s not because of how companies are using the technology, at least not yet. Rather, the sheer amount of investment — in data centers, semiconductor factories and power supply — needed to build the computing power that A.I. demands is creating enough business activity to brighten readings on the entire domestic economy.

Companies will spend $375 billion globally in 2025 on A.I. infrastructure, the investment bank UBS estimates. That is projected to rise to $500 billion next year. Investment in software and computer equipment, not counting the data center buildings, accounted for a quarter of all economic growth this past year, data from the Commerce Department shows.

(Even that probably doesn’t reflect the whole picture. Government data collectors have long had trouble capturing the economic value of semiconductors and computer equipment that large tech companies like Meta and Alphabet install for their own use, rather than farming out to contractors, so the total impact is likely to be higher.)

The big tech companies are the largest financiers of the frenzy, but private equity firms have been pouring in capital, too. Brookfield Asset Management, which manages a vast real estate portfolio, estimates that A.I. infrastructure will sop up $7 trillion over the next 10 years.

The torrent of cash comes as the effects from Biden-era infrastructure subsidies fade, erratic tariffs freeze corporate decision making and high borrowing costs deter less lucrative real estate projects such as housing and warehouses. In 2025, spending on data center construction — not including the cost of all the technology they house — will exceed investment in traditional office buildings, according to the Dodge Construction Network.

“The expectations of very high returns in this industry are trumping the high interest rates that we are facing today,” said Eugenio Alemán, chief economist with the financial services company Raymond James.

Companies are promising even more spending, but their ability to deliver, he noted, depends on whether their expectations are fulfilled. Most A.I. tools are not profitable currently, and they will have to generate huge cash flows over time for the tech companies to recoup their investments.

“There is always a risk that very little of what they say is going to pan out,” Dr. Alemán said. “So whenever they figure out that it is not what they thought, there is going to be a large correction.”

For now, everyone wants a piece of the spending.

To understand the excitement around booming A.I. use, it’s helpful to take a spin through corporate quarterly earnings calls. Publicly traded construction firms, electricity providers and electronics manufacturers are eagerly telling investors they can get a piece of the action:

• Duos Technologies, which provides analytics and imaging for railroads and other infrastructure, has recently expanded into building small data centers. “Our business is commercially and financially in a great position to take advantage of the superhot demand coming from the data center computing gold rush,” said Charles Ferry, the company’s chief executive.

• “These data center managers and big A.I. providers need energy and energy storage in an insatiable way,” said Dennis Calvert, the chief executive of BioLargo, an environmental services company that sells a large-scale battery system.

• “With data center growth and climate mandates accelerating demand for clean, reliable baseload power, the opportunity for advanced nuclear has never been stronger,” said James Walker, the chief executive of NANO Nuclear Energy, which makes small reactors.

Data centers are also attractive to traditional construction companies, which see the opportunity to shift from their typical real estate development projects into a new asset class with ample capital behind it. Skanska, a large contracting firm, forecasts that data center construction will average 13.2 percent annual growth through 2029, a far speedier rate than any other sector it tracks. The American Cement Association, an industry group, estimated that the sector would require a million metric tons of cement over the next few years.

One of North America’s largest building materials suppliers, Amrize, developed an “A.I. optimized” concrete mix with Meta that has lower carbon emissions. Amrize said data center construction was a “bright spot” in its otherwise soft second quarter.

The boom has also been good for electricians, engineers and heavy-equipment operators. Although data centers that are up and running typically employ only a small number of people, the construction phase can put thousands to work. That’s part of the reason that U.S. construction employment has remained steady even as housing, office and warehouse projects have dried up.

How long can the spending last?

The intensity of the A.I. investment wave has raised uncomfortable parallels to the last time the tech industry funneled billions of dollars into infrastructure to support a new technology with high expectations of future profits.

In 2001, after the stock market crash brought on by the collapse of speculative dot-com companies, the telecommunications sector crumpled, too: Companies that had taken on debt to build out fiber-optic networks failed, creating an implosion that rippled through the global economy.

Already, there are a few signs of caution. The chief executive of OpenAI, Sam Altman, raised eyebrows this month with remarks that the sector is “overexcited” and that some players will lose a lot of money. UBS, while generally positive on the industry, wrote in a note to clients that there could be some “indigestion” over the capital expenditures underway.

At the moment, investors are reassuring themselves that a pullback would not be catastrophic. For one thing, data centers are financed by a diverse group of lenders, reducing the exposure of any one part of the banking system. Leases generally have long terms with hard-to-escape contracts, which could insulate landlords even if their deep-pocketed tenants had to walk away.

For another, even if A.I. use doesn’t live up to the hype, the internet is expanding quickly. The flood of data center capacity in the pipeline is still likely to be absorbed, even if more slowly than it is now. Vacancy in leased data centers — that is, those that aren’t owned by their users — is currently close to zero. Future developments are usually spoken for ahead of time, according to JLL, the real estate professional services firm.

“If we think about just general data creation and data storage, that has been growing at a rapid pace for decades, and that will continue to grow,” said Andrew Batson, JLL’s head of data center research for the Americas. “At some point there will be some natural slowdown in demand, but that’s not in our near-term forecast.” He expects the sector will keep growing about 20 percent annually through at least 2030.

In the coming years, the most significant constraint on data center growth is more likely to be supply: The energy, water, workers and technical equipment required to construct and run them are all getting more expensive. At the same time, local communities, once eager to attract data centers, have occasionally soured on them. In the latest example, the City Council of St. Charles, Mo., placed a one-year moratorium on new facilities over concerns about drinking-water contamination.

“There’s a ton of money going into it, but at some point the cost is going to bite,” said Eric Gaus, chief economist with Dodge Construction Network, which closely tracks new developments. “You’ve got the locals who are saying, ‘If you’re going to put something here, you need to do more than just build it and walk away.’”

Cade Metz and Ben Casselman contributed reporting.

Lydia DePillis reports on the American economy for The Times. She has been a journalist since 2009, and can be reached at [email protected].

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