Summary: Corporate America's artificial intelligence investment frenzy is facing potential disruption due to a global trade war started by the Trump administration. Despite initial concerns about slow returns and doubts fueled by AI models built cheaply by China's DeepSeek, investments in AI tools continue to grow. However, upcoming earnings reports from tech giants including Alphabet and Microsoft will show whether tit-for-tat tariffs between the U.S. and China are forcing businesses to rethink their ambitious infrastructure plans.

Global Trade War Threatens AI Boom

The ongoing trade war has sparked concerns about the impact on AI investments across industries from energy to software. Analysts say that tariffs disrupting supply chains, especially in China, could hit investments in AI tools and point to early signs of tech giants pulling back on data center leases. China's exclusion from a 90-day tariff reprieve earlier this month has put pressure on tech companies as the world's No. 2 economy is crucial to the production of AI hardware.

Impact on Data Centers

Tariffs will sharply increase data center costs if an exemption on electronics is rolled back, analysts say. Much of the electrical infrastructure and data center equipment is manufactured outside of the U.S., and in many cases, this equipment is in short supply and demand is high globally. Pat Lynch, executive managing director for data center solutions at CBRE, a commercial real estate services firm, said: "Tariffs will likely make this more challenging, especially if foreign suppliers divert this equipment to other markets."

Implications for the U.S. Economy

A pullback in AI spending has big implications for the U.S. economy. J.P. Morgan analysts estimated that spending on data centers could contribute between 10 and 20 basis points to the country's economic growth in 2025-2026.

Signs of Slowing Down

Some concern is already baked into shares of the "Magnificent Seven" - a group of high-flying stocks that have powered the market in recent years but have lost around $5 trillion in market value since hitting a peak late last year. AI chip giant Nvidia, whose blistering stock rally over the past two years briefly turned it into the world's most valuable firm, is down about 26% this year. Alphabet stock has lost about 20% of its value.

Signs of Slowing Down in Data Center Build-up

There have been signs that companies are slowing their data center build-up. TD Cowen analysts said last month that Microsoft had abandoned projects set to use 2 gigawatts of electricity in the U.S. and Europe in the last six months due to an oversupply. A senior Microsoft executive said earlier this month that the company might adjust the pace of its plans, but it would continue to grow capacity wherever there was demand.

Early Signs of Tech Giants Pulling Back

On Monday, Wells Fargo analysts said Amazon.com had delayed some commitments around new data center leases - a move the company said reflected routine capacity management and no changes to its expansion plans. "It does appear like the hyperscalers (big cloud firms) are being more discerning with leasing large clusters of power," the analysts wrote in a note.

Tech Giants' Capital Expense Plans

Pre-emptively, both Alphabet's Google and Microsoft have reaffirmed their capital expense plans for the year that together total $155 billion - nearly half the roughly $320 billion analysts estimate Big Tech will pour into AI this year. However, the pressure is mounting on tech companies as tariffs disrupt supply chains.

Hyperscalers' Long-term Plans

Some investors and analysts say the long-term promise of AI justifies continued spending, even if short-term returns are slow - an argument commonly offered by tech executives. Earlier this month, Amazon CEO Andy Jassy defended his company's AI investments, saying it was necessary to remain competitive in the race to dominate the technology.

Private Equity Firm's View

"The market has massively discounted the near-term spending for AI and it is wrong," said private equity firm Patriarch Organization's CEO, Eric Schiffer. "The large tech players cannot afford to lose the AI race. I think you will start seeing more substantial returns from hyperscalers in one year to 18 months."

Conclusion: Corporate America's artificial intelligence investment frenzy is facing potential disruption due to a global trade war started by the Trump administration. Despite initial concerns about slow returns and doubts fueled by AI models built cheaply by China's DeepSeek, investments in AI tools continue to grow. However, upcoming earnings reports from tech giants including Alphabet and Microsoft will show whether tit-for-tat tariffs between the U.S. and China are forcing businesses to rethink their ambitious infrastructure plans.