Big tech’s capex splurge may be irrationally exuberant 

From the 19th-century railway mania to the telecoms boom at the dawn of the internet age, cautionary tales abound of over-investment in infrastructure fuelled by excitement over a new technology. With the rise of generative artificial intelligence (AI), history is repeating itself. In recent weeks four tech giants—Alphabet, Amazon, Meta and Microsoft—have pledged to spend close to a total of $200bn this year, mostly on data centres, chips and other gear for building, training and deploying generative-AI models. That is 45% more than last year’s blowout. Tech barons such as Meta’s Mark Zuckerberg admit that it may be years before this investment generates returns. It is an AI arms race.

The tech firms are not only buying infrastructure. In the past few years they have joined a stampede to put venture capital (VC) into OpenAI, Anthropic and other makers of foundational models. Traditional VC firms bellyache that they have not seen such corporate big-footing since the dotcom boom. The tech giants are flush with cash—they can afford to splash out. But, if the past is any guide, a bust is coming and the firms carry such weight in the stockmarket that, should their overexcitement lead to overcapacity, the consequences would be huge.