AI capex projected at 3.6% of US GDP: Why the AI boom is bigger than the dotcom bubble, explains SBI MF

Detailed summary

AI investment is driving growth but also increasing borrowing and long-term bond yields. With spending expected to reach unprecedented levels, investors question whether future revenues will justify the costs. Details here.

The surge in artificial intelligence investments has fueled strong economic growth in different parts of the world, particularly in the United States. However, the massive borrowing by hyperscalers and tech companies to fund their spending has also put upward pressure on long-term bond yields.

The scale of expenditure marks one of the largest capital spending cycles in history. Average annual AI capital expenditure (capex) is estimated at around 3.6% of US GDP during 2025–32, much higher than the 1.1% recorded during the 2000 dotcom cycle and 2.2% during the 19th-century railroad boom, NDTV Profit reported, citing a report by SBI Funds Management.

However, a key concern is whether the massive investments in AI will eventually generate enough revenue for companies to justify the spending. Technology giants such as Amazon, Microsoft, Alphabet and Meta, are spending billions of dollars on data centres, chips and other infrastructure. Worldwide spending on AI is forecast to total $2.67 trillion in 2026, marking a nearly 50% increase year-over-year, according to data from Gartner.

If AI boom fails to sustain, the impact could extend, not only to the technology sector, but also to US equities, economic growth and the allocation of capital across asset classes. With US equity valuations already looking stretched, investors could shift away from the market altogether.

SBI Funds Management noted that concerns over the sustainability of the AI boom have already triggered a repricing of US Treasury yields and prompted some foreign portfolio investors (FPIs) to redirect flows towards India.

The asset management company's remarks come following a global AI stock rout witnessed in early November across Wall Street and Asian technology hubs. This trend was driven by Democratic Party's sweep of both chambers of Congress, raising investor fears of tighter regulations, potential moratoriums and greater scrutiny of data-centre expansion, according to the news report.

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