Morgan Stanley says mega-cap tech firms are on track to pour nearly $1 trillion into AI spending this year, regardless of rising prices in infrastructure material and equipment.
In a new episode of Morgan Stanley’s Thoughts on the Market podcast, Andrew Sheets, global head of fixed income research, says US tech giants are now price-insensitive and willing to sustain their massive AI spending, despite soaring costs.
“We estimate about $800 billion of investment by large US technology companies this year, almost double their spending last year and triple their spending in 2024. But it’s not just the size, it’s the idea that this investment may happen almost whatever the cost. Specifically, we’re looking at a desire by multiple large companies to build out large AI infrastructure all at the same time, and that’s increased the price of these components.
The copper needed to wire together that data center? Well, it’s up about 40% in the last year. A gas turbine to power it? Up 50%. The memory to run it? It’s up 150 to 300% over the last year alone. And yet, despite these extremely large price increases, the demand to build AI has been accelerating.”
Sheets says Morgan Stanley’s spending forecasts have been consistently revised higher throughout the year, and his colleagues now estimate $1.1 trillion in AI infrastructure spending next year.
The Morgan Stanley executive also warns that the enormity of the AI spending could impact companies outside of tech looking to issue bonds.
“Robust demand for items, even as their price goes up, may cause those prices to increase even further. That’s inflation happening at a time when core inflation measures are already well above the Federal Reserve’s target. And if companies are less sensitive to the cost of their borrowing to fund AI, well, other companies could find their costs dragged wider in sympathy. We continue to expect record supply and modest widening in the US corporate bond market.”
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