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AI Investment Is Propping Up The Economy
Programming a tipping point // Illustration by Kate Walker
The AI industry alone accounted for half of the growth in the US’s gross domestic product, highlighting just how much the current gold rush is propping up the economy.
The Big Picture: The race to conquer AI is driving unprecedented spending. All of that capital expenditure seems to be making up for stagnation in most other industries, a softening job market, and high costs that have dampened consumer spending. If the rug gets pulled out from under AI (as it did with NFTs and the metaverse), it would likely trigger a recession.
Behind The Investment: So, how risky is the house of cards that the US economy is on right now? The WSJ breaks it down.
Bank of America estimates that Microsoft, Amazon, Meta, and Alphabet will collectively spend $344 billion this year — roughly 1.1% of GDP. And they’re likely to spend even more in 2026.
They’re taking on a lot of debt to do it, shooting cash out of a cannon to construct data centers, buy Nvidia chips, and lock down top talent. If they don’t generate enough money to cover those loans, it’s bad news.
All in, that spending has helped fuel 1.6% GDP growth… but without AI spending, it drops to a bleak 0.8%.
And that’s bad news for anyone invested in the stock market, who has benefitted from a total $180 billion in extra wealth this year. If this house of cards falls, so will the worth of their 401(k)s and brokerage accounts.
Final Tally: So, how wobbly is all of this really? Barclays senior US economist Jonathan Millar warns that a 20%-30% stock market drop, fueled by either fear or the reality of an AI bubble, would reduce GDP growth by up to 1.5%. In other words, if AI sinks, the US economy shrinks.
No wonder the White House just launched the “Genesis Mission” to supercharge AI growth and utilization. As a country, we’re going all in on the gamble.
The Future: It’s possible that the newest trend in investing may be AI-proofing portfolios, similar to how people modulate their stocks-to-bonds ratio.
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Today’s email was written by David Vendrell.
Edited by Nick Comney. Polled and Copy-edited by Kait Cunniff.
Published by Darline Salazar.