Data Center Spending Overtakes US Housing Investment
US hardware spending hit $752 billion in Q2, surpassing residential construction for the first time in two decades.
Key points
- US information processing equipment spending hit $752 billion in Q2, exceeding residential investment of $748 billion.
- Hyperscaler capital expenditures are projected to exceed $1.3 trillion by 2027, up from $470 billion in 2025.
- AI firms remain insensitive to high interest rates, unlike the housing sector which is suppressed by 7% mortgage costs.
US spending on information processing equipment reached $752 billion in the second quarter. This figure exceeded real private residential fixed investment of $748 billion. The shift marks a structural change in American economic drivers.
Hyperscalers are pouring capital into AI infrastructure at record speeds. Investment from a handful of tech giants is expected to reach $1 trillion annually soon. Meanwhile, the housing market remains largely frozen since 2022.
Hardware spending surpasses residential construction
Federal Reserve Bank of San Francisco official Adam Shapiro noted the pivotal shift. Inflation-adjusted spending on computers now leads residential investment. This trend confirms a broad reallocation of capital toward technology.
Bureau of Economic Analysis data shows residential investment fell 18% from its 2021 peak. Conversely, hardware spending soared 51% over the same period. The divergence highlights the dominance of the AI build-out.
Interest rates drive the divergence
Residential investment remains highly sensitive to borrowing costs. The benchmark 30-year mortgage rate is nearly 7% as bond yields rise. High rates suppress demand for new and existing homes.
AI companies show little sensitivity to interest rate changes. Treasury Secretary Scott Bessent described corporate debt issuance as yield-agnostic. Firms prioritize speed of construction over the cost of capital.
Future capex projections and risks
S&P Global estimates hyperscaler capital expenditures will exceed $1.3 trillion by 2027. This represents a jump from $470 billion projected for 2025. The aggressive growth outpaces current revenue generation.
Operating cash flow for major tech firms will turn negative in 2026 and 2027. The ratings firm warns of potential overcapacity if demand falters. 2028 is identified as the critical inflection point for profitability.
