Despite the Fed’s concerns about ongoing inflation pressures, the tech stock market surged on Wednesday after Chinese tech giant Alibaba revealed plans to boost its artificial intelligence spending beyond its previously stated $53 billion aim.
Increase In AI Investment Fuels Market Hope
Alibaba will extend its three-year AI infrastructure effort beyond the initial 380 billion yuan ($53 billion) investment made in February, CEO Eddie Wu said at the company’s Cloud Technology Conference. Wu underlined that “Alibaba must keep pace” and that global investment in AI might reach about $4 trillion over the next five years.
The announcement coincided with the release of Alibaba’s new huge language model, Qwen3-Max, which has over one trillion parameters, making it one of the biggest AI models in the world. Additionally, the business announced a software collaboration with Nvidia to integrate the chipmaker’s AI development tools for training autonomous vehicles and robotics.
Alibaba’s shares rose 9% in premarket trading in the United States and to four-year highs in Hong Kong, increasing its market value by about $20 billion. With the Hang Seng Tech index rising and MSCI’s Asia-Pacific stock index getting close to four-year highs, the rise helped support broader Asian markets.
Fed Rate Warning Suppresses Interest
The tech surge took place in the midst of Jerome Powell, the chair of the Federal Reserve, warning about the state of the economy. Powell called the combination of sluggish job growth and perhaps increased inflation a “challenging situation” for policymakers during his speech in Rhode Island on Tuesday.
Powell stated that stocks were “fairly highly valued” and cautioned that “uncertainty around the path of inflation remains high”. Powell said future rate cuts would be moderate rather than dramatic, but last week the Fed lowered rates by 25 basis points to 4.0%-4.25%, its first since December.
The central bank forecasts core PCE inflation to be 3.1% and inflation to stay at 3% in 2025, both of which are higher than the Fed’s 2% target. Powell admitted that price rises linked to tariffs might raise inflation over a number of quarters.
Momentum In Tech Sector Increases
Nvidia’s announcement of a $100 billion investment in OpenAI and Alibaba’s AI investment announcement came at the same time, which increased optimism about AI. The collaboration between Nvidia and OpenAI will create data centers that require 10 gigawatts of electricity, which is the same amount of energy needed to power more than 8 million homes in the United States.
The need for high-bandwidth memory chips, which are essential to AI systems, drove record quarterly sales for memory chipmaker Micron Technology, which further improved attitude toward AI. Major U.S. indices declined Tuesday from recent record highs, despite these encouraging signs, and technology stocks had their worst day in almost a month.
As investors balance the promise of game-changing technology against worries about monetary policy tightening and high valuations, the opposing forces of AI investment fervor and Federal Reserve caution are creating a difficult dynamic for markets.