Big Tech will burn $700 billion on AI by the end of 2026 — and one NYU professor says it's the biggest waste of money

Artificial intelligence is driving the biggest investment wave in U.S. history. Spending on the technology has already surpassed the price tag on the Manhattan Project and NASA's Apollo Program. But the trillion-dollar bet on AI has some investors spooked — and questioning whether profits will outweigh the massive cost.

The scale of spending is undeniable. Amazon, Google, Microsoft and Meta have already dished out record amounts on AI, spending $130.6 billion in the first three months of 2026 alone. The eye-watering figure is more than three times what the Manhattan Project spent to develop nuclear bombs. (1)

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Now, three out of the four companies have revealed plans to increase their AI spending, which is anticipated to be nearly $700 billion by the end of the year. (2)

In a post on X, NYU professor and AI researcher Gary Marcus said the spending is "sheer insanity," calling it the "greatest capital misallocation in history." (3)

Yet the financial results tell a more complicated story. Recent earnings from all four companies exceeded Wall Street expectations, suggesting that, at least for now, AI investments could be paying off. (4) Microsoft, Google-owner Alphabet, Amazon and Meta all reported double-digit revenue growth.

Investors, however, are still uneasy. Shares in Meta dipped by 7% after CEO Mark Zuckerberg said the company needed to spend billions more on AI to achieve its goals. (5)

Soaring investment doesn't necessarily translate into greater AI capacity. Costs are rising rapidly, particularly for the components that power AI. Memory chip prices alone have seen a 50% increase in price this year so far and are expected to keep rising. (6)

"We are increasing our infrastructure capex forecast for this year," Zuckerberg said on April 29. "Most of that is due to higher component costs, particularly memory pricing."

Microsoft is facing similar pressures, with tens of billions of dollars from its AI budget expected to go to parts alone.

Some analysts have drawn parallels between the AI investment boom to the dot-com bubble of the late 1990s. Billionaire investor Ray Dalio has previously said the current AI boom resembles about 80% of the euphoria seen before the 1929 crash or the 2000 dot-com collapse. (7)

Even global institutions are raising flags. International Monetary Fund Chief Economist Pierre-Olivier Gourinchas has said the technology has yet to meet market expectations and could trigger a crash. (8)

The comparisons aren't unfounded. The S&P 500 has climbed to near-highs, reminiscent of levels seen before the dot-com crash. (9) In both cases, investor enthusiasm has been driven by transformative technological promise.

There is, however, a crucial difference: Today's AI leaders are not speculative startups. They are among the most profitable companies in the world, generating substantial cash flow even as they pour billions into expansion.

Whether AI will ultimately deliver the returns many expect remains uncertain. What is clear is that the world's biggest tech companies don't plan on slowing down anytime soon.

If you have a standard S&P 500 index fund, you're likely already heavily exposed to AI whether you realize it or not. The 10 largest companies in the S&P 500 now constitute over 40% of market capitalization, and most of them are tied to AI. (10)

Those looking to diversify their investments should consider the industries surrounding AI. The boom has pushed valuations higher across the tech sector, particularly for companies tied to chips and generative AI tools. Spreading investments across multiple platforms can also help reduce risk.

With all periods of economic change, investors should be prepared for some volatility. AI stocks are likely to swing as companies adjust spending plans and investors assess the market.

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Reuters (1); Yahoo Finance (2); X (3),(7); NBC News (4); Meta Investor Relations (5); The Wall Street Journal (6); Al Jazeera (8); J.P. Morgan (9); Companies Market Cap (10)

This article originally appeared on Moneywise.com under the title: Big Tech will burn $700 billion on AI by the end of 2026 — and one NYU professor says it's the biggest waste of money

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