The explosion in AI spending is having a ripple effect throughout the tech industry, and now gamers are going to pay the price.
To find out just how much weight AI holds in the U.S. economy, the Federal Reserve Bank of St. Louis looked at how much money is being spent on software, R&D and information processing equipment, along with data-center construction data.
In the first quarter last year, information processing equipment, which includes microchips like those made by Nvidia (NVDA) and AMD (AMD), contributed 90 basis points to real GDP growth, more than 2 standard deviations above its long-run average.
Real GDP growth overall fell 0.6% during that period, suggesting that when the economy was doing the worst, tech companies spent more to build out their AI infrastructure. As the economy improved in the latter half of the year, the contribution from processing equipment fell sharply, only to be offset by an increase in AI software spending.
Microsoft (MSFT) has been one of the biggest contributors to this AI spend, with a projected $190 billion in CapEx for 2026 to expand its AI infrastructure.
While Microsoft is more than happy to spend money to build an AI moat that few other companies will be able to compete with, the AI-fueled spending is causing big problems for its video game division.
Analysts at Wedbush have bad news for gamers looking forward to Project Helix
This week, an internal memo from Xbox CEO Asha Sharma revealed that the company is facing a “hardware component crisis” that could cause console shortages as far out as the 2027 holiday season.
According to Sharma, Xbox is currently paying four times what it did for console storage components just last fall. The company projects the cost will keep rising, though at a much slower rate, “taking us over 5x the prices paid only two years earlier” by the 2027 Christmas season.
Christmas 2027 is circled on every Xbox fan’s calendar, as that is the expected launch date for Project Helix, the codename for the game maker’s next-generation console. But the cost of the console storage components is going to curtail how much it can spend on hardware like gaming consoles, which could lead to shortages and higher prices.
“We view the Xbox memo as a clear sign that the memory/NAND shortage is rewriting consumer hardware economics (not just trimming margins),” Wedbush analysts Matt Bryson and Antoince Legault said in an investor note, according to Seeking Alpha.
“Client SSD NAND that ran 5-6 cents/GB as recently as 2H 2025 is now closer to $0.30/GB, which, on our estimate, adds $250 of storage cost to a 1TB Series X (a $650 console) and $500 to a 2TB Special Edition ($800). That a platform holder is publicly weighing a new hardware model and flagging constrained console output shows the pass-through has moved from PCs and phones into fixed BOM devices that can’t easily reprice, reinforcing our structural shortage through 2027+ thesis.”
Xbox is planning layoffs at the end of the company’s fiscal year on June 30 as part of a business reorganization, and it plans to “significantly slash” budgets for marketing and other areas.
Microsoft retools Xbox
Xbox CEO Asha Sharma has generated significant goodwill among the gaming community in her short time in the role.
Since February, she has dropped the price of Game Pass Ultimate on Xbox to $22.99 per month from $29.99 per month. The PC Game Pass price has also decreased.
Though that change came with a hidden cost, the ever-popular Call of Duty games will no longer be available on the subscription service at launch, instead arriving about a year after their release.
She also changed Microsoft Gaming back to Xbox.
The 37-year-old also seems to be changing the brand’s stance on game exclusivity amid a rash of games from rival Sony PlayStation that will be exclusive to that console.
While Xbox is making its Halo: Campaign Evolved remake available to PlayStation players for the first time ever next month, PlayStation has probably the most anticipated game of the year, Marvel’s Wolverine, coming as an exclusive later this year.
“To be a leading publisher, our games must reach large audiences. At the same time, we are increasingly becoming a platform,” Sharma recently said. “To succeed as a platform, we must offer exclusive content and services. And we’re looking at that very closely.”
Related: Microsoft CEO sends another shocking message to employees
