AI Gold Rush Creates $320 Billion Bubble as Federal Reserve Measures Lose Effectiveness

The Federal Reserve’s usual monetary policy levers are proving less capable of reining in the surge of AI-driven expenditures by major technology companies, a pattern that supports recent remarks by Fed Chair Jerome Powell. Even as interest rates have climbed in an effort to temper inflation, firms such as

, , Alphabet, and are still channeling vast sums into AI infrastructure. This marks a significant change in how corporations allocate capital in the digital era, as Sherwood News observed when these companies in capital expenditures last quarter. According to , this aggressive investment—fueling both investor doubts and market swings—highlights a widening gap between central bank actions and the priorities of private enterprise.

The magnitude of these investments is remarkable. In the latest quarter, Amazon, Alphabet, Meta, and Microsoft together allocated nearly $97 billion to capital projects, not counting finance leases, which would push the total past $100 billion. Looking ahead to 2025, Microsoft alone expects to spend $80 billion on AI-powered data centers, while Meta has increased its capital expenditure forecast to between $70 billion and $72 billion, with further growth anticipated in 2026. Meanwhile,

that investor optimism might be excessive. Experts predict that leading tech companies could collectively pour more than $320 billion into AI this year, drawing parallels to the exuberance of the dot-com era.

Yet, investor confidence is showing signs of strain. Meta’s stock tumbled 11.8% in late October after the company revealed it would ramp up AI spending more than expected, while Microsoft’s shares slipped 3.5% after reporting a record $34.9 billion in capital outlays, according to Yahoo Finance. These declines reflect fears that such heavy investments may not deliver immediate revenue, reminiscent of Meta’s costly foray into the metaverse. OpenAI’s CEO Sam Altman has cautioned that the current excitement around AI is “overexcited,” warning that the sector could face a correction similar to the dot-com bust of the 1990s.

Amazon, on the other hand, stands apart;

that its announcement of a $125 billion AI investment for 2025 sent its stock soaring by 11%, in stark contrast to Meta’s 12% drop. This difference is attributed to Amazon’s two-pronged approach: it not only sells AI infrastructure through AWS but also leverages it internally to boost its retail and advertising businesses. AWS, which saw a 20% year-over-year increase to $33 billion in revenue, delivers immediate financial returns on infrastructure investments, whereas Meta’s AI projects have yet to demonstrate clear profitability.

The race to dominate AI has also revealed deeper changes in financial markets. Much of the funding for this infrastructure expansion now comes from private credit and long-term bonds, with data center investments increasingly backed by private capital. Torsten Slok of Apollo Global Management pointed out that outside of AI, corporate capital spending has largely stalled, emphasizing the sector’s disproportionate impact on GDP growth, as detailed in

. However, this growing dependence on less transparent financing methods is raising concerns. JPMorgan CEO Jamie Dimon has cautioned that non-bank lending, which has not been tested in economic downturns, could heighten risks if the economy slows.

As the conversation about AI’s long-term prospects heats up, the Federal Reserve’s ability to shape corporate strategies seems increasingly limited. Powell’s observation that AI investments are “not sensitive to interest rates” is being confirmed as companies focus on long-term strategic advantage rather than short-term costs. While some warn that the sector is inflating a bubble, others believe it is laying the groundwork for lasting innovation. The next few months will reveal whether these massive investments lead to transformative progress or become another lesson in the dangers of overinvestment.