American companies expected to dial back data center budget as Trump tariffs cause austerity

The new set of tariffs rolled out by the Donald Trump administration may hit the country’s tech ecosystem the hardest, affecting initially proposed budgets on data centers and the country’s plan to outpace rivals in the AI race, observers say. 

On Wednesday, Trump announced a new set of tariffs aimed at a long list of countries and leading technology exporters. Imports from China, Taiwan, and South Korea, which are leading suppliers of electronics and data center equipment, will now face 34%, 32%, and 25% duties, respectively.

These three nations collectively represent some of the largest sources of technology hardware used in U.S. infrastructure. In 2024 alone, electronics, including smartphones, PCs, and data center components, made up nearly $486 billion in U.S. imports.

Data processing machines from China, Mexico, Vietnam, Taiwan, and Malaysia accounted for $200 billion, according to Bernstein analysts.

Potential budget realignments and procurement shifts

Given the recent development, analysts have pointed out that capital expenditure by tech giants, which was set for importing some of these goods, will get reshuffled, as they may dial down on expansion and focus more on procurement hedging or sourcing shifts.

Semiconductors, arguably the most essential ingredient of modern electronics, were unsurprisingly exempted from the new tariffs . However, the White House is still reportedly planning to come for those chips in the future.

Speaking on the development, AMD released a statement saying that it is “assessing the details and any impacts on our broader customer and partner ecosystem.” However, its shares and those of other leading GPU and chip-making companies such as Nvidia and Broadcom took hits, closing down between 7% and 10%, while the U.S.-listed shares of semiconductor chip heavyweight TSMC lost 7.6% of its value as at closing on Thursday.

Intel didn’t perform as badly as its peers, with a 2.1% rise following reports of its preliminary joint venture agreement with TSMC.

Other analysts have pointed out that the equipment used in making data centers will become more expensive due to the new tariffs, with companies such as Microsoft and Amazon, who are already in the data center business with some in development phases, reportedly taking more balanced and cautious approaches.

The Trump administration isn’t putting duties on semiconductors for now, as it may be a long-term strategy to help local development of other data centers. However, investors in that space are not in the clear as the tariffs could still apply to circuit board assemblies with which the semiconductors are sold.

However, if the hardware that accompanies these semiconductors is exempt from the tariffs, it may ensure that the costs do not increase too much, says Dylan Patel, founder of industry research firm SemiAnalysis.

Tariffs cloud future of AI infrastructure

The U.S. government claims that the reasons for the tariffs are tied to growing the American economy and providing more jobs for Americans. However, these actions may also impact an industry that the U.S. is highly invested in – AI adoption. The industry heavily relies on data centers, whose expansions have been publicly supported by President Donald Trump.

Earlier in the year, Trump announced Stargate in a bid to establish American leadership in AI development, with the venture worth $500 billion involving OpenAI, the firm behind ChatGPT, Oracle, and the SoftBank Group.

The Stargate project is expected to yield 20 data centers in the U.S. Given the current tariffs, observers say it may be difficult for the project to hit the target amount in terms of funding it may need to scale, as investors may want to avoid it given the potential increased cost of delivering on the projects.

Leading providers of cloud services aren’t exempt: Microsoft, Alphabet, and Amazon are reportedly facing low investor confidence given their large AI budgets. Microsoft’s shares closed down 2.4% on Thursday, while Amazon and Alphabet ended lower around 9% and 4% respectively.

Six months ago, Microsoft was reported to have pulled the plug on some data center projects that would have utilized 2 gigawatts of electricity in the U.S. and Europe due to the problem of having more supply than demand for their service.

Leading brokerage firm, HSBC warned on Thursday that there may be a potential slowdown in spending from cloud companies, with Nvidia at risk of losing revenue due to slowing demand.

Another analyst mentioned that the tariffs might cause a capitulation of demand and see cutbacks on software and cloud spending, and the impending tough economic climate could also cause a reduction in digital advertising spending, thereby affecting giants such as Alphabet and Meta.

Apple isn’t left out, as it faces a possible increase in the price of its devices, which could exceed the $2000 price tag, thanks to its large manufacturing base in China. Apple’s shares plunged by 9%.

Beyond tech, other sectors are also feeling the squeeze . Fashion brands like Nike, Adidas, and Puma, which source heavily from Southeast Asia, have seen sharp declines in stock value, with Vietnam and other countries hit by tariffs exceeding 40%.

Luxury goods, champagne, and foreign-made automobiles are expected to rise in price. Some employers, such as carmaker Stellantis, are already responding, mentioning that they will be laying off 900 employees temporarily.

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