"AI Gold Rush Spawns $320B Bubble as Fed Tools Falter"

The Federal Reserve's traditional tools of monetary policy are proving less effective in curbing the AI-driven spending spree among tech giants, a trend that has validated Federal Reserve Chair Jerome Powell's recent assertions. Despite rate hikes aimed at cooling inflation, companies like Amazon, Microsoft, Alphabet, and Meta continue to pour hundreds of billions into AI infrastructure, signaling a shift in how corporate capital is allocated in the digital age, as Sherwood News found when those firms spent nearly $100 billion on capex last quarter. This spending, which has sparked investor skepticism and market volatility, underscores the growing disconnect between central bank measures and private-sector investment priorities, according to a Yahoo Finance report.

The scale of investment is staggering. In the most recent quarter, Amazon, Alphabet, Meta, and Microsoft combined spent nearly $97 billion on capital expenditures, a figure that excludes finance leases and would surpass $100 billion if included. For 2025, Microsoft alone plans to invest $80 billion in AI-enabled data centers, while Meta has raised its capex guidance to $70 billion–$72 billion, with further increases expected in 2026, and Sam Altman warned that investor enthusiasm may be overheated. Analysts estimate total AI-related investments by major tech firms could exceed $320 billion this year, a figure that has drawn comparisons to the speculative fervor of the dot-com boom.

Investors, however, are growing wary. Meta's shares plummeted 11.8% in late October after the company signaled larger-than-expected AI spending, while Microsoft's stock dropped 3.5% following a record $34.9 billion capex report, according to Yahoo Finance. The sell-off reflects concerns that these expenditures may not translate into near-term revenue gains, echoing past missteps such as Meta's costly metaverse pivot. OpenAI CEO Sam Altman has warned that investor enthusiasm for AI is "overexcited," cautioning that the sector risks a correction akin to the 1990s dot-com crash.

Amazon, however, appears to be an exception; Investing.com reported that its $125 billion AI investment in 2025 triggered an 11% stock surge, contrasting sharply with Meta's 12% plunge. The divergence stems from Amazon's dual monetization strategy: selling AI infrastructure via AWS while using it internally to enhance retail and advertising operations. AWS, which grew 20% year-over-year to $33 billion in revenue, provides immediate returns on infrastructure spending, whereas Meta's AI initiatives remain unproven in terms of profitability.

The AI arms race has also exposed broader shifts in capital markets. Private credit and long-term bond financing are now fueling much of the infrastructure buildout, with data-center deals increasingly secured through private capital channels. Apollo Global Management's Torsten Slok noted that corporate capex outside AI has stagnated, highlighting the sector's outsized role in GDP growth, as described in a Fortune article. Yet this reliance on opaque financing raises red flags. JPMorgan CEO Jamie Dimon has warned that non-bank lending, untested in downturns, could amplify risks during an economic slowdown.

As the debate over AI's long-term viability intensifies, the Fed's influence over corporate behavior appears limited. Powell's concern that AI spending is "not sensitive to interest rates" is being borne out by companies prioritizing strategic dominance over short-term cost considerations. While skeptics argue the sector is inflating a bubble, optimists see a foundation for sustained innovation. The coming months will test whether these investments yield transformative gains-or another cautionary tale of overcapitalization.