Researched by Gunaprasath Bupalan

New tariffs imposed by US President Donald Trump are raising concerns about the future of Big Tech’s significant investments in US data centres, particularly those supporting artificial intelligence infrastructure. Analysts suggest these tariffs could disrupt supply chains and force companies to reconsider their spending plans.

The recently introduced tariffs, which include 34% on goods from China, 32% from Taiwan, and 25% from South Korea, alongside a general 10% tariff on all imports, are expected to significantly impact the electronics sector. Data processing machinery imports alone were valued at approximately $200 billion in 2024, with major suppliers located in Mexico, Taiwan, China, and Vietnam, according to Bernstein analysts.

Experts predict that tech giants may need to reallocate their capital expenditure, shifting focus from expansion to mitigating the effects of the tariffs through procurement strategies or alternative sourcing. Abhishek Singh from Everest Group noted that this could lead to a reshuffling of spending among key players in AI infrastructure and consumer technology.

While semiconductors were initially excluded from the tariffs, potential future tariffs on chips are being considered, according to a White House official. This uncertainty has already affected the market, with shares of companies like Nvidia, AMD, and TSMC experiencing significant declines.

The increased costs associated with data centre equipment are likely to drive up overall building costs. Analysts, including Gil Luria from D.A. Davidson, anticipate that this will lead to a substantial increase in the price of equipment used in data centres.

The tariffs also cast doubt on ambitious projects like Stargate, a $500 billion data centre venture involving OpenAI, SoftBank Group, and Oracle, aimed at advancing US AI capabilities. The increased costs and economic uncertainty could make raising the necessary funds for such large-scale projects more challenging.

Moreover, leading cloud service providers such as Microsoft, Alphabet, and Amazon are facing increased scrutiny from investors regarding their substantial AI budgets. The tariffs add another layer of financial pressure, potentially leading to cutbacks in spending.

Analysts from TD Cowen have reported that Microsoft has already scaled back data centre projects in the US and Europe due to oversupply relative to current demand. HSBC has also warned of a potential slowdown in cloud company spending next year, further impacting the sector.

Ben Barringer, a global technology analyst at Quilter Cheviot, believes that the tariffs could lead to decreased demand, resulting in reduced software and cloud spending. He also highlighted that companies like Alphabet and Meta could see a double impact due to potential reductions in digital advertising in a challenging economic climate.

Source: https://www.reuters.com/