By Tae Kim

Artificial-intelligence innovation is still booming, even as investors worry about a bubble.

In the last week, OpenAI introduced a new advanced image generation feature for its AI model. Alphabet's Google released what it calls its "most intelligent" model called Gemini 2.5, to widespread critical acclaim. And Elon Musk's xAI Grok continues to rise to the top of iPhone app download charts just behind OpenAI's ChatGPT, as users gravitate toward the both start-ups' latest "reasoning" models.

In recent days, all three AI companies have said demand is so high for their latest releases that it's overwhelming their data center AI chip capacity. On Monday, OpenAI CEO Sam Altman said on social media that ChatGPT added one million users in one hour and characterized demand as "biblical" due to incredible amount of usage for its image-generation tool.

The official Grok account said the service is seeing "high usage" and said it may experience service issues as more GPUs are added to data centers. Google said Gemini 2.5 Pro is "taking off," as well. Both OpenAI and xAI primarily use Nvidia AI GPUs to power their services.

There's just one potential problem for AI and the AI trade: tariffs.

The latest innovation and progress could be upended by President Donald Trump's upcoming tariff proposals, which he intends to reveal late Wednesday at the White House.

Trump has threatened tariffs on specific countries, key raw materials, and sectors, including on imported metals and semiconductors. Such tariffs would make it financially difficult for American technology companies to invest in the AI infrastructure they need to continue innovating and serving customers.

Many of these products and raw materials can't be made or mined in the U.S. anytime soon. A 25% tariff on copper, for example, would make it far more expensive to purchase the electrical equipment needed for data centers. A large tariff on chips -- Trump has threatened up to 100% -- or other computer components would reduce the funds available to invest in aggregate capacity, hampering America's ability to compete with China in the global race for AI.

Factories cost billions to build and take three to four years before capacity can come online. By the time they're ready, Trump's tariffs could be undone by the next president. The policy uncertainty could keep management teams from investing in U.S. factories, undoing any domestic benefit from those tariffs.

AI is full of promise, but trade wars are one problem the technology can't solve.

Write to Tae Kim at tae.kim@barrons.com

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April 01, 2025 15:38 ET (19:38 GMT)

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