Lesson 2: From Chips to Power Grids. The Hidden Bottlenecks Behind the AI Gold Rush
Analysis of the AI investment surge, supply chain and infrastructure bottlenecks, and evolving funding models.
Lesson 2 of The Economics of AI covers the capital investments companies are making to build out AI infrastructure, how they compare with other mature industries, and the bottlenecks that prevent us from realizing the full potential and benefits of Generative AI innovations.
Find all the lessons in The Economics of AI here and the previous lesson below.
Lesson 1: How Technology Platform Shifts Reshape the World
Every decade or so, we see the emergence of a new technology that changes how we develop tools, solve problems, and organize ourselves. Generative AI is just one such technology shift people have lived through, and one of many we are currently living through. We will cover what historically happens in a technology shift and the impact we can expect to see in the tech industry and beyond.
The Capital Tsunami: Analyzing the AI Investment Surge
The fundamental uncertainty surrounding AI’s ultimate potential has triggered a capital expenditure (capex) boom of historic proportions. This ambiguity is the primary psychological driver of the intense FOMO (Fear Of Missing Out) gripping the world’s largest technology companies1.
The prevailing sentiment, as articulated by Google CEO Sundar Pichai
“The risk of under-investing is significantly greater than the risk of over-investing.”
and Meta CEO Mark Zuckerberg
“The very worst case would be that we have just pre-built for a couple of years.”
This mindset has unleashed a torrent of capital aimed at building the foundational infrastructure for the AI era.
The Scale of Investment
The numbers behind this investment surge are staggering. The four largest platform companies are on track to spend nearly $350 billion on infrastructure in 2025 alone, a fourfold increase from just a few years ago.
This spending is expected to accelerate, with Microsoft, Alphabet, and Meta signaling that their capex growth rates in fiscal year 2026 will be even higher than in 2025.
“We now expect the FY26 growth rate to be higher than FY25” - Microsoft
“Capex dollar growth will be notably larger in 2026”- Meta
“We expct a significant increase in 2026” - Alphabet
To put these figures in perspective, the potential annualized capex for generative AI infrastructure, estimated at $500-750 billion, would rival or exceed the spending of entire global capital-intensive industries, such as telecommunications (~$300 billion annually) and upstream oil and gas (~$540 billion annually). The value of data center construction will soon overtake that of office and warehouse construction.
Supply Chain and Infrastructure Bottlenecks
This unprecedented demand is placing immense strain on the global technology supply chain, creating significant bottlenecks that constrain the pace of deployment.
