LIVE MARKETS-AI investment happening no matter the cost

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com.

AI INVESTMENT HAPPENING NO MATTER THE COST

There are many notable things about the surge in AI spending by big tech companies, but one, points out Morgan Stanley's global head of fixed income research, Andrew Sheets, is how price-insensitive it is.

Morgan Stanley estimates about $800 billion of investment by large U.S. tech companies this year, almost double last year.

"But it's not just the size, it's that this investment may happen almost whatever the cost," Sheets says on an MS podcast.

He flags copper is up about 40% in the past year, gas turbine prices have risen 50% and memory chips 150-300%, largely a result of the demand coming from these tech companies all at the same time.

"And yet despite these extremely large price increases the demand to build in AI has been accelerating,... and that $800 bln to be spend this year is set to be dwarfed by $1.1 trillion in 2027."

He also flags that debt costs have increased, but companies continue to issue at a record pace.

In some ways it's not surprising, big tech names have the cash, and AI could be game-changing.

But what does this price spending mean? Apart from good news for chip makers, which markets already know given the moves in semiconductor indexes. .SOX, .KS11

Sheets says on the one hand, it bodes well for economic growth -- if cost isn't a factor for AI spending, then it's likely to keep going.

On the other hand, if companies keep spending despite higher prices, one would imagine prices are only going to go up further, not good news given inflation is already running hot.

There's also the risk that if AI companies don't care about the costs they borrow at, that could pressure borrowing costs for other companies too.

(Alun John)

EARLIER LIVE MARKETS POSTS

GILTS TEETER ON THE EDGE CLICK HERE

SOFT FIRST FEW HOURS FOR EUROPEAN STOCKS CLICK HERE

EUROPE BEFORE THE BELL: NOW ADD UK POLITICS TO THE MIX CLICK HERE

MORNING BID: PEACE TALKS STUTTER CLICK HERE