How the US economy became hooked on AI spending

Business investment in artificial intelligence might have accounted for as much as half of the growth in gross domestic product, adjusted for inflation, in the first six months of the year. Rising AI stocks are also boosting household wealth, leading to more consumer spending, especially in recent months.

“It’s certainly plausible that the economy would already be in a recession" without the AI boom, said Peter Berezin, chief global strategist at BCA Research.

Take away AI spending, and the economy looks in worse shape. Although job growth was higher than expected in September, job creation has nonetheless slowed this year and the unemployment rate is inching up. Private business investment excluding AI-related categories is mostly flat since 2019, according to Deutsche Bank. Outside of data centers, other commercial construction, such as shopping centers or office buildings, is down.

That makes the economy more dependent on AI. “It’s the only source of investment right now," said Stephen Juneau, an economist at Bank of America.

Bank of America estimates that just four companies—Microsoft, Amazon.com, Alphabet and Meta Platforms—will make $344 billion in capital expenditures this year (equivalent to roughly 1.1% of GDP), up from $228 billion last year.

Barclays estimates that investment in software, computer equipment and data centers boosted GDP growth by around 1 percentage point annualized in the first half of 2025. AI explained much, though not all, of that.

Chips such as those sold by Nvidia make up the bulk of AI spending, but most are imported and must be subtracted from total investment to arrive at the impact on domestic production. Accounting for that, AI spending still increased output by an annualized 0.8% in the first half of the year, Barclays estimates. GDP grew by an annualized 1.6% during the period. In other words, absent the growth in AI-related spending, growth would have been a sluggish 0.8%.

While some of the investment is likely because of companies rushing purchases ahead of tariffs, analysts expect spending to continue growing next year, albeit more slowly. Nvidia said Wednesday that it anticipates $65 billion in sales in the fourth quarter of this year—higher than analysts predicted—and Bank of America expects Microsoft, Amazon, Alphabet and Meta to make another $404 billion in capital expenditures next year.

In the long run, there are also hopes that AI will boost growth by making workers more productive, but the impact has been small so far.

Rising stocks also support the economy through the wealth effect—the tendency of households to spend a portion of each added dollar in wealth on anything from yachts to movie tickets. JPMorgan Chase calculates that rising prices of AI stocks alone boosted consumer spending by 0.9%, or $180 billion, over the past year. Though a small part of the 5.6% growth in consumer spending in the 12 months ended in August unadjusted for inflation, that still matters because consumption accounts for about two-thirds of annual output.

AI has had a much smaller effect on the labor market. Completed data centers employ few people and overall tech employment is down since 2022, in contrast to the internet bubble of the late 1990s, when it surged. But in some sectors, the AI boom is boosting jobs. For example, data centers are a bright spot for construction employment that has been hobbled by high interest rates, a weak real-estate market and the federal crackdown on immigration.

Anywhere from 100 to 5,000 people are needed to build a data center, said Ben Kaplan, managing director of the advanced technology group at Turner Construction, a builder. Data centers now account for around 35% of Turner’s backlog in the U.S., up from around 13% five years ago. Shortages of skilled workers and materials are a challenge. Lead times for electrical generators, switchgear and other equipment have in some cases grown by months. “Every element of the supply chain is being stressed right now," Kaplan said.

The economy’s dependence on AI comes with risks. Stock price/earnings ratios are near record highs. If lofty profit predictions prove wrong, share prices may tumble and investment could slow. The S&P 500 fell about 2% last week on concerns about a bubble, despite rallying 1% on Friday.

Falling stocks could trigger a reverse wealth effect: Americans would consume less, which would tend to depress sales, profits and, potentially, employment. Minutes from the Federal Reserve’s October policy meeting show some officials voicing concern over a drop in stock prices, “especially in the event of an abrupt reassessment of the possibilities of AI-related technology." Barclays senior U.S. economist Jonathan Millar estimates that a 20% to 30% stock-market decline could reduce GDP growth by 1 to 1.5 percentage points over roughly a year.

If AI investment stopped growing, that could knock another 0.5 point off growth, Millar estimates. If it went to zero, that would knock a full percentage point off.

An already weakened economy raises the odds of a downturn if stocks and AI spending crash, said BCA’s Berezin. “If you take a fragile labor market and you kick it with a capex bust, you’re probably going to get a recession out of it."

Another risk relates to the growing scale of AI-related borrowing. Oracle’s debt recently rose above $100 billion after the company sold $18 billion in bonds, part of which could be used to fund AI infrastructure. Companies such as CoreWeave that lease data centers and rent the servers to tech companies have borrowed heavily to fund their expansion.

If the revenue necessary to service that debt doesn’t materialize, lenders could take a hit, spilling over into debt markets, said Berezin.

There isn’t enough AI-related debt to directly cause a financial crisis, Berezin said, but financial markets are complex and trouble in one sector could indirectly hurt another.

Write to Konrad Putzier at konrad.putzier@wsj.com