Yesterday, the U.S. published the PCE for the month of March with a YoY growth of 3.5%. This has been, during Powell years the preferred inflation measure used by the Fed to fulfill the price stability mandate. With 3.5% inflation, it will be difficult to justify a rate cut. The Q1 first reading of GDP was also published. The U.S. economy grew 2% (it may be revised lower), which is not an eye popping growth rate. What’s important is that 75% of that growth was produced by AI investment. The infamous data centers. The CapEx announced by hyperscalers/mag 7 has been so massive that they’re contribution to the US economy is already huge. And just this week, some of those same companies have ratified/upscaled their commitments to AI. And in the case of META, for example, they have been punished for it. The investments are just too big to be supported by their operating cash flow. Which leads us to the chart below: the pipeline for data center construction for the next three years is massive, but the first defections are appearing. And the problem is not just money (at least today). Compass Datacenters has decided to withdraw from its plan to develop a major data center in Virginia, due to mounting legal challenges, stricter regulations, and weakening tax incentives. Most of these data centers investments will not be profitable for a while. It’s a race to the bottom to get market share. Which begs the question: how many more of those data centers announced for the next 24 months will be canceled? And if so, what will happen to the U.S. GDP? What will happened to the debt that has been issued, private and public, for that matter? Doesn’t this remind us of the internet era in 1999-2000?

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