The Data Center AI Spending Boom Hides a Dirty Little Secret
Key Points
The biggest players in technology have announced record capex spending to support their AI ambitions.
Memory prices have soared, playing into that spending boom.
Micron Technologies gives investors a way to profit from the current paradigm.
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One of the biggest developments in recent memory has been the advent of artificial intelligence (AI). The potential of these game-changing algorithms to increase productivity and streamline time-consuming tasks has fueled growing adoption. This, in turn, has sparked a mad dash by big tech companies to capitalize on the unprecedented opportunity.
Capital expenditures (capex), particularly for the servers and data centers needed to support the growing demand for AI, have risen to record levels and are only expected to keep rising from here.
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Yet things are not always what they seem, and this spending boom hides a dirty little secret.
Image source: Getty Images.
Record spending
Processing AI requires large amounts of data and significant computational horsepower. As such, AI primarily resides in data centers, which can house both the data and the chips needed to get the job done. The biggest names in technology -- namely Amazon, Alphabet, Meta Platforms, and Microsoft -- have embarked on an unprecedented spending spree to meet the ongoing demand for AI.
In 2025, these tech giants laid out an estimated $360 billion in capex spending, and that number is expected to skyrocket to nearly $600 billion in 2026. Amazon announced plans to spend $200 billion over the coming year, while Alphabet and Meta have budgeted $175 billion and $115 billion, respectively. Microsoft operates on a different fiscal calendar than its peers and hasn't provided specific guidance on its spending plans, but early estimates suggest it will lay out nearly $98 billion.
Since data center spending will soar by roughly 67%, investors could reasonably conclude that demand for AI will increase by a similar amount -- but the devil is in the details.
An unlikely culprit
There's been a persistent shortage of data center memory chips, including high-bandwidth memory (HBM), DRAM, and NAND, which play a crucial role in AI processing. This shortage has caused chip prices to spike, and it will only get worse before it gets better, as demand continues to outpace supply. With limited production capacity, major memory manufacturers have shifted resources to meet the demand for AI, but are still falling short.
This shortage is expected to continue into 2027, according to experts, as it takes two years or more for additional manufacturing to come online.
As a result of the shortage, memory prices have spiked and could account for as much as 45% of the increase in data center spending in 2026, according to data compiled by Business Insider.
That said, there's a way investors can profit from the current paradigm.
Robust and growing profits
Arguably, the biggest beneficiary of the memory shortage has been Micron Technology (NASDAQ: MU). The company is a leading supplier of DRAM, NAND, and HBM chips -- and business is booming.
In its fiscal 2026 first quarter (ended Nov. 27), Micron delivered record revenue of $13.6 billion, which jumped 57% year over year, and 20% quarter over quarter. This fueled adjusted earnings per share (EPS) of $4.78, which surged 167%.
The surge in profitability was driven by significant margin expansion. Micron's gross margin of 56% soared 1,760 basis points. Equally as telling was the increase in operating cash flow to $8.41 billion, up 160% year over year and 47% sequentially.
Management believes the company's growth spurt will continue, noting that it expects "aggregate industry supply will remain substantially short of the demand for the foreseeable future." As a result, Micron expects Q2 revenue of $18.7 billion, up 132% year over year, and adjusted EPS of $8.42, up 440%.
The stock currently trades at a premium, at 38 times earnings, but given its triple-digit growth, I'd argue the premium is justified.
There's a caveat here. Micron's memory business has historically been cyclical, but the accelerating adoption of AI has changed the landscape. If demand for AI suddenly goes south, memory prices would plummet, and the stock could take a hit.
For now, however, Micron represents a compelling opportunity and could generate significant upside for investors.
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Danny Vena, CPA has positions in Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Micron Technology, and Microsoft. The Motley Fool has a disclosure policy.
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