By Martin Baccardax

Big tech spending on artificial intelligence is set to soar past $1 trillion next year as companies race to secure their place in the queue of the world's hottest technology. That is a level equal to around one third of all U.S. profits outside of the financial sector, and around 2% of U.S. GDP.

The upshot of a ll that spending, however, is a likely boost to inflation prospects, which are already rising from oil and energy prices tied to the U.S. war with Iran and the on again, off again nature of tariffs put in place by President Donald Trump.

That's likely to keep headline price pressures rising over the next year, and possibly longer, as tech goods costs continue to soar and the biggest U.S. hyperscalers extend their spending plans in order to win an AI race that shows no signs of slowing.

"There is a regime shift underway in technology goods inflation," said Stifel research analyst Thomas Carroll, who notes that 2026 "marks the first time in 65 years that tech goods prices are rising faster than wages."

"The U.S. economy appears to be rotating into a 'Run Hot' regime, which favors investment over consumption, pressuring the consumer alongside an ongoing energy shock," he added. "It's the biggest macro shift no one's discussing: technology has turned inflationary."

The AI spending numbers are certainly compelling.

The four biggest hyperscalers -- Alphabet, Amazon, Meta Platforms and Microsoft -- are poised to spend around $725 billion this year, with their overall tally topping $1 trillion sometime in 2027, once targets from Oracle and CoreWeave are added to the mix.

But the ongoing surge in global oil prices, which has seen Brent crude rise more than 65% over the past three months, helping U.S. gasoline surge to the highest levels since 2022, is already stoking inflation concerns.

PCE inflation, the Federal Reserve's preferred measure, quickened to 3.5% in March, the highest in nearly three years, while first quarter growth came in at an underwhelming 2% on the Bureau of Economic Analysis's first estimate.

Leadership changes at the Fed, meanwhile, suggest a new method for tackling inflation espoused by new Chair nominee Kevin Warsh that is taking long-dated U.S. Treasury yields to the highest levels in a year.

" The macro backdrop is genuinely difficult," said Mark Malek, chief investment officer at Siebert Financial.

"We are in a market that is being carried by the earnings power of a small group of genuinely exceptional companies, lubricated by record buybacks and professional money that knows how to navigate chaos," he added. "But we also have slowing growth, re-accelerating inflation, and a Fed that cannot move cleanly in either direction."

That could create significant challenges for an economy that is both leaning on the AI investment boom for a good portion of its growth, and hoping that the inflationary pressures tied to the U.S. war in Iran eases over the coming months.

"AI is no longer just lifting a handful of tech stocks; it is driving GDP growth, EPS revisions, margins, semiconductor demand, industrial backlogs, and the next leg of capital spending," said Jordi Viser, head of AI macro nexus research at 22V.

Inflation signals, in the meantime, are rising through "oil, gasoline, diesel, crop prices, prices paid indexes, and global bond yields," he added.

The latter is no small concern. The U.S. paid $103 billion in net interest payments in March, the highest on record, while the weighted interest rate on the national debt had more than doubled since its all-time low in 2022 to around 3.33%. according to official Treasury figures.

All of this points to a Fed that will likely need to wait longer, and push the bar for rate cuts incrementally higher, over that back half of the year.

"The interplay between tariffs, late-cycle fiscal stimulus, and geopolitical tensions runs the risk of re-kindling inflation," said Jason Pride and Michael Reynolds at Glenmede. "Vast spending on AI infrastructure highlights its power to reshape the economy, even as the scale of capex echoes past cycles."

But it also suggests that the first waves of the AI investment cycle may not have the disinflationary impact that investors were looking for.

"Supply disruptions of energy, chemicals and other industrial materials are increasing inflation pressures," said Jean Boivin, who heads BlackRock's Investment Institute. "At the same time, an accelerating AI buildout is creating outsized demand for energy, data centers and specialized labor, which is bumping into worsening capacity and political constraints that are increasing costs."

"We think AI's productivity gains could quickly offset such 'chipflation' and other price pressures -- and push down inflation," he added. "But this hasn't happened yet."

Write to Martin Baccardax at martin.baccardax@barrons.com

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May 04, 2026 11:55 ET (15:55 GMT)

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