Citigroup forecasts Big Tech's AI spending to cross $2.8 trillion by 2029
News Summary
Citigroup has raised its forecast for AI-related infrastructure spending by tech giants to surpass $2.8 trillion through 2029, up from an earlier estimate of $2.3 trillion. This increase is attributed to aggressive early investments by hyperscalers and growing enterprise appetite. The Wall Street brokerage sees AI capital expenditure (capex) across hyperscalers reaching $490 billion by the end of 2026, an increase from its prior estimate of $420 billion. Companies like Microsoft, Amazon, and Alphabet have already poured billions into investments to alleviate capacity constraints hindering their ability to meet surging AI demand. Citi analysts expect hyperscalers to reflect this incremental spend in their third-quarter earnings calls, with guidance anticipated to be "building ahead of visible enterprise demand". The firm estimates global AI compute demand will require 55 gigawatts of new power capacity by 2030, translating to $2.8 trillion in incremental spend, with $1.4 trillion in the U.S. alone. The report also highlights that big tech firms are increasingly borrowing to fund AI infrastructure, moving beyond relying solely on profits. This shift is impacting their financials, with spending beginning to erode free cash flows, prompting investors to question the sustainability of funding such massive investments.
Background
The AI boom, ignited by ChatGPT's launch in late 2022, has continued to fuel staggering capital outlays and data center expansion. This trend persists despite a brief crisis of confidence sparked by China's cheaper DeepSeek model and lingering market concerns over U.S. President Donald Trump's tariff policies. Hyperscalers, including Microsoft, Amazon, and Alphabet, are the primary drivers of AI infrastructure investments. These companies require immense computational power and energy to support their AI model development and deployment. As AI technology permeates various industries, the demand for advanced AI infrastructure only continues to grow.
In-Depth AI Insights
What are the implications for the market as Big Tech shifts to debt-funded AI expansion? - The pivot by major tech companies from primarily profit-funded to debt-funded AI infrastructure signals the urgency and strategic importance of the AI race, potentially overriding short-term profitability concerns. - This model could lead to expanded balance sheets and increased reliance on debt markets for these companies. Investors must closely monitor their leverage levels and cash flow management, especially in a sustained higher interest rate environment. - It also suggests a further intensification of a