Key Takeaways:
Peter Schiff says hyperscalers are spending $1 trillion annually on AI gear that may be obsolete in five years.
Peter Schiff, the longtime dollar bear and Euro Pacific Capital chief, warned that the $1 trillion annual AI infrastructure buildout represents a massive capital misallocation, with data center equipment at risk of obsolescence within five to six years.
"Where's this trillion dollars coming from? What would all these companies have done with that trillion dollars if they weren't using it to buy computer equipment?" Schiff said on his podcast The Peter Schiff Show episode "The Debt, the AI Bubble, and Strategy's Liquidity Crisis."
The numbers give his thesis weight. Microsoft Corp. spent $30.88 billion on capex in its March quarter, up 84 percent from a year earlier. Alphabet Inc. spent $35.67 billion, more than double the prior year. Amazon.com Inc. posted $44.2 billion in a single quarter, an annualized pace near $175 billion, while its trailing free cash flow collapsed to $1.2 billion from $26 billion. Meta Platforms Inc. raised its 2026 capex guidance to as much as $145 billion.
The spending is flowing directly to chipmakers. Nvidia Corp. generated $81.62 billion in revenue last quarter, up 85 percent, with data center networking alone growing 199 percent. Micron Technology Inc. shares have surged 865 percent over the past year on high-bandwidth memory demand tied to GPU adoption. But the market is already differentiating: Microsoft and Meta, the heaviest spenders relative to expectations, are down 10 percent and 2.3 percent year to date, respectively, while Google and Amazon, where capex converts to visible bookings, are up 22 percent and 21 percent.
The Spending Gap Between Capex and Revenue
Schiff's argument goes beyond valuation. He questions what the spending displaces — mass layoffs and foregone investment in other areas, with consumer confidence at record lows even as Wall Street celebrates. On-the-ground evidence supports the concern. Uber Technologies Inc. burned its entire 2026 AI budget by April after Claude Code spread across roughly 5,000 engineers faster than finance had modeled, according to The Information. CTO Praveen Neppalli Naga said the company was "back to the drawing board on its assumptions."
The private credit market is also showing strain. Defaults in the opaque private credit sector hit a record-high 6 percent in April, according to Fitch Ratings, and UBS strategist Matthew Mish projects defaults rising from 4.4 percent to as much as 10 percent, driven in part by the AI cycle. Software companies, which account for 19 percent of private credit collateralized loan obligation assets, face slowing growth and margin compression as AI disrupts their business models.
What the Bulls Say
The rebuttal is direct. Microsoft Chief Executive Officer Satya Nadella said the company's AI business reached an annual revenue run rate of $37 billion, up 123 percent year over year. Nvidia CEO Jensen Huang calls the buildout "the largest infrastructure expansion in human history." Polymarket assigns an 80 percent probability that Microsoft alone will be worth more than OpenAI and Anthropic combined by year-end 2026.
Google's cloud backlog stands at $460 billion, and Amazon Web Services grew 28 percent in the latest quarter, suggesting that at least some of the spending is converting to committed revenue. The bull case rests on the idea that AI infrastructure, unlike past tech cycles, will generate returns that justify the upfront cost.
For investors, the spread between these two narratives will determine the cycle's outcome. If Schiff is right and AI gear depreciates faster than revenue scales, the $1 trillion in annual spending could produce a wave of writedowns and a sharp pullback in tech capital spending. If Nadella and Huang are right, the current multiples on Nvidia at $5.16 trillion and Micron at $1 trillion will look cheap in hindsight. The market is already voting with its feet — rewarding Google and Amazon while punishing Microsoft and Meta — suggesting it sees merit in both arguments.
This article is for informational purposes only and does not constitute investment advice.
