While President Donald Trump’s tariff war aims to spark a manufacturing boom at home, corporate America’s focus remains firmly on “bits” instead of “bricks and mortar.”
This contrast is evident in the spending habits of the Magnificent 7 stocks—large-cap tech companies like Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
These companies are projected to spend an astounding $650 billion this year on capital expenditure and research and development, according to data tracked by Lloyds Bank. This figure exceeds the annual public investment by the U.K. government, the bank noted.
If that isn’t impressive enough, consider this: investment in IT equipment and software continues to surge this year, accounting for 6.1% of GDP, while both private fixed and non-residential investments, excluding IT, have declined for several quarters.
FOMO and AI
According to Lloyds’ FX Strategist Nicholas Kennedy, the drop in investments in other sectors may stem from several factors, including the fear of missing out on the artificial intelligence boom.
“There might be alternative explanations beyond mere crowding out by IT spending and political/trade uncertainties; the construction boom sparked by Biden’s CHIPS act, which increased structural investments, has faded. There’s also a FOMO effect, where firms are redirecting investment resources from their traditional projects toward trendy AI-related initiatives. Thus, spending is being diverted,” Kennedy mentioned in a note to clients.
The chart shows that U.S. corporate spending on IT equipment and software has risen to $1.45 trillion, a 13.6% increase year-over-year, making up over 40% of total U.S. private fixed investment.
The U.S. second-quarter GDP estimate revealed that private fixed investment in IT grew by 12.4% quarter-on-quarter, while investments in non-IT sectors fell by 4.9%, extending a three-quarter declining trend.
From ‘bricks’ to ‘bits’
This persistent focus on “bits” spending in corporate America should ease concerns that the administration’s emphasis on manufacturing might draw capital away from technology sectors, including emerging fields like cryptocurrencies.
Bitcoin and NVDA, a key indicator for AI developments, both reached lows in late November 2022 alongside the launch of ChatGPT and have since experienced remarkable upward trends, indicating a strong connection between technological advancements and the crypto market.
“Whether the AI spending boom yields returns is up for debate, but it does shift plans from bricks to bits,” Kennedy remarked.
Furthermore, the crypto market has also benefited from favorable regulatory policies. The administration has shown a pro-crypto stance through the endorsement of several crucial regulations aimed at clarifying oversight for digital assets and stablecoins, including bipartisan measures. Additionally, strategic appointments have been made to financial regulatory bodies.
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