While President Donald Trump’s Customs War aims to trigger a production boom at home, the US consumption focus remains stuck on “bits” rather than “brick and mortar.”
This contrast is evident in the consumption patterns in the magnificent 7 (MAG 7) Stock-a group consisting of tech companies with big capital, including alphabet (parent company to Google)Amazon, Apple, Meta Platforms (parent company to Facebook and Instagram)Microsoft, Nvidia and Tesla.
These companies are expected to cumulatively spend an astonishing $ 650 billion this year on capital costs (CAPEX) and research and development (F&U)According to data traced by Lloyds Bank. This amount is greater than what the British government spends on public investment in one year, the bank noted in a Thursday note.
If this number alone does not impress you, consider this: the total financial overall investment costs on IT equipment and software have continued to grow this year and account for 6.1% of GDP, while both private fixed and fixed non-residential investments excluding it has shrunk for consecutive quarters.
Fomo and AI
According to Lloyd’s’ FX strategist Nicholas Kennedy, the fall in investments across other sectors in the economy can be due to several reasons, including fear of missing out on (Fomo) About the artificial intelligence (AI) Boom.
“There Might Be Some Explanations Other Than A Crowding Out By It Spending and Political/Trade Uncertainties That You Could Call On; The Building Boom That Was Triggered by Biden’s Chips Act, which boosted Structures, Has Faded, for instance. Two Divert Investment Resources From What They Traditionally Do Towards Fashionable AI-Related Projects.
The chart shows that US corporate expenses on IT equipment and software have risen to $ 1.45 trillion, representing a 13.6% increase the year before. Tally accounts for over 40% of the total US private regular investments.
The US GDP estimate over the second quarter released by the Bureau of Economic Analysis early this week showed that private regular investments in it increased by 12.4% quarter to quarter.
Meanwhile, investments in non-IT sectors or the wider economy fell by 4.9%, expanding the declining trend in three quarters.
From ‘brick’ to ‘bits’
This continued dominance of “Bit” expenses in business should soothe the nerves of those who are concerned that the administration’s focus on manufacture can suck capital away from technology markets, including new ways such as Cryptocurrencies.
Bitcoin and NVDA, Bellwether for all things AI, both bottomed out at the end of November 2022 with the launch of Chatgpt and has since had incredible bull races, demonstrating a strong correlation between the increase in technology and the crypto market.
“Whether it’s [AI spending boom] Generates a return is another matter, but it transforms plans against bits from bricks, “Kennedy said.
In addition, the crypto market has also found a significant tackle wind in the form of a favorable regulatory policy under Trump. The administration has demonstrated its pro-crypto bias through the signing of several key laws aimed at clarifying legislative supervision for digital assets and stablecoins, including measures that have received bipartisan support. In addition, the administration has made strategic appointments to financial regulatory bodies.
