In December, I wrote about how the AI boom has entered a more dangerous phase. Investments in physical infrastructure were increasing exponentially as AI giants competed in a resource grab, requiring more and more new outside capital and creating significant downside risks if anything went wrong. In the last few weeks, we've seen clear illustrations of both the speed of investment as well as what happens when there are hiccups.
I recently shared my thoughts with our clients on how we’re processing these dynamics. Below, I’ve included an excerpt from that research.
Greg Jensen
Co-Chief Investment Officer, Bridgewater Associates
How We’re Processing AI’s More Dangerous Phase and the Risks We See Ahead
Events of the last few weeks highlight the AI giants’ existential pressure to invest as fast as physically possible and the risks and volatility this creates. In summary:
- Alphabet, Amazon, Meta, and Microsoft announced a massive acceleration in their respective 2026 investment plans, which we now expect to collectively total $650 billion compared to $410 billion in 2025.
- To fund this, they have even more sharply curtailed buybacks. This doubles down on the already significant risks they face if the investments don’t fully pan out. But they believe (and we agree) that investing as fast as they physically and financially can is an absolute strategic necessity given the threat and opportunity they face.
- Nearly simultaneously, we got live examples of what happens when there is negative news in this environment. Microsoft and AMD released Q4 2025 earnings that contained small disappointments in their most AI-exposed businesses, and each fell more than 10%. Notable model and product releases from Anthropic and Google exposed significant risks for SaaS companies, game developers, and data providers, leading to sharp sell-offs in those sectors.
The key dynamics we see are:
- The fundamental drivers of the AI boom are still accelerating. AI labs are continuing to develop more capable models and products, and AI adoption is exploding across the economy, most recently with the remarkable growth in Claude Code and Claude Cowork. So, compute demand continues to significantly outpace supply, driving hyperscalers to invest even more rapidly to try to someday get ahead of the demand.
- That investment is growing so fast that it is now even more meaningfully constraining other spending and requiring significant new capital from the broader market. Whether indirectly due to fewer buybacks or directly from greater issuance, global investors are being asked to write huge checks to fund this phase of the build-out.
- It is no longer possible for AI leaders to satisfy their investors’ expectations without creating existential risks to other sectors like software. Anthropic and OpenAI need to release major new products to convince investors to subscribe to their massive and final private fundraising in preparation for their IPOs. They cannot justify their valuations and capital asks without a compelling path to massive future profits, and some, if not most, of those profits will come at the expense of other companies’ profits.
- We expect choppiness and dispersion to continue as the market sorts out the eventual winners from losers, but we do not think the recent stock price volatility in the AI segment says much about longer-term sector-wide trends. This volatility is common and normal in major technological/investment booms.
- Beyond the stock market itself, more tech investment spending remains a significant upward pressure for US growth. We think it was a 50bp boost to GDP in 2025 and is tracking to be a 100bp support in 2026. We also expect the capex to cause higher inflation in tech and communications equipment and in some regions’ electricity prices. A big enough stock market fall could jeopardize those supports via the wealth effect and because it limits companies’ options to raise more capital—as happened in 2000—but the recent move so far is an order of magnitude smaller than that.
The chart on the left below shows the Big 4 hyperscalers’ capital investment and consensus growth from here. Given that they have continually blown past consensus spending forecasts and their own guidance, we would once again expect their spending to grow faster than currently forecast. The chart on the right shows how aggregate AI capex has flowed through to aggregate US growth and what we are now expecting over the next two years.
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