AI Investment Boosts Business Equipment Spending to 6-Year High

In March, new orders for nondefense capital goods, excluding aircraft, increased by 3.3%, building on February’s 1.6% rise, according to a report released by the Census Bureau on April 29.

This important metric, often referred to as “core capital goods” by economists, serves as a vital indicator of business investment trends, as highlighted by various media outlets.

As reported by Reuters on Wednesday, the growth in core capital goods orders surpassed expectations, with economists anticipating only a 0.5% increase.

The rise in business spending on equipment can be largely attributed to the booming investments in AI technologies and the data centers that facilitate their operations.

Additionally, the report suggested that companies may be accelerating their purchases to avoid potential price increases or shortages, particularly in light of geopolitical tensions involving Iran.

Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, remarked that “the remarkable level of strength in a month when businesses might typically exercise caution indicates a significant surge in development that was previously hindered by policy uncertainties.”

Bloomberg also reported on Wednesday that the increase in core capital goods orders for March was the largest since mid-2020.

This uptick marks the continuation of a year characterized by robust capital investment, driven largely by corporate expenditure on AI.

Economists predict that this trend will persist through the end of 2026, fueled by ongoing investments in AI and favorable tax conditions, as stated in the Bloomberg report.

Eliza Winger, an economist at Bloomberg Economics, noted, “Business investment is entering the second quarter with solid momentum, bolstered by strong spending related to AI. Although geopolitical uncertainties merit attention, current data do not indicate any significant pullback in capital expenditure yet.”

On April 23, it was reported that Meta plans to reduce its workforce by 10% to balance the spending it has made on AI infrastructure, with intentions to invest between $115 billion and $135 billion this year on data centers, chips, and other AI-related infrastructure.

Furthermore, on April 20, Anthropic announced its commitment to spend over $100 billion over the next decade on Amazon Web Services (AWS) technologies, including Trainium and Graviton hardware.

Earlier, on April 1, it was reported that Meta, Google, and Amazon are collectively planning to invest tens of billions more in data centers this year to meet the escalating demand for AI technologies.