Economic growth in the United States is increasingly driven by investment in artificial intelligence.
Many consumers now interact directly with AI through applications like ChatGPT and summarized search results on Google and Apple. You may also come across AI-generated images on social media.
However, that is not the driving force behind growth. Instead, it’s an investment in building the raw computing power and power infrastructure needed to run these applications and the applications that may evolve from them in the future. Think data center construction, computer processing chips, information processing equipment, and power transmission hardware.
“AI is having a direct economic impact, as (technology companies) are demanding the hardware and software needed to scale their cloud computing capabilities to meet the growing demand for AI computing. and other companies’ capital investments,” Ed said. Yardeni is the president of Yardeni Research, a market economic consulting company.
For now, the gains from increased spending on AI technology and infrastructure are relatively narrow, both in terms of jobs and economic returns.
Still, the rise in the stock market was enormous. Spending on building AI technology will account for 16% to 20% of real gross domestic product in the third quarter of 2024 alone, according to new estimates from Skanda Amarnath, executive director of Employ America. It is expected that this number will continue to increase. In a Bloomberg News article, Amarnath said that AI-related investment as a proportion of total spending has surpassed the GDP share of the dot-com boom in the late 1990s, and is on track to reach the same size as housing during the 2000s bubble. He said there was. Published on Monday.
“That’s starting to show up in the data,” Amarnath told NBC News. “This means it is more macro-relevant and will likely be a tailwind for growth in 2025.”
The technologists pushing to build AI not only have the potential to transform business productivity, they tout it as one of the most important developments in human history. . For now, FOMO, rather than immediate profit, seems to be driving much of the current cycle.
“Hyperintelligent tools have the potential to vastly accelerate scientific discovery and innovation far beyond what we could do alone,” said Sam Altman, head of OpenAI, which built the original ChatGPT. , and the result can be a significant increase in wealth and prosperity,” he wrote in a recent blog. .
At the same time, some scattered voices are already calling the current AI investment cycle a “bubble” that, like the dot-com and housing investment cycles, could burst and lead to a recession.
In a July report published by investment banking giant Goldman Sachs, Jim Covello, head of equity research at Goldman Sachs, wrote, “The world has no use for or is not ready for something. “Overbuilding usually ends badly.” “The Nasdaq fell about 70% between the height of the dot-com boom and the founding of Uber.”
But in the meantime, high-profile AI announcements continue to pile up. On Tuesday, President-elect Donald Trump announced a $20 billion deal to build new data centers in partnership with a billionaire developer in the United Arab Emirates. Later that day, Amazon’s AWS Cloud Computing Group announced $11 billion in AI-related investments in Georgia. Earlier this month, Microsoft announced it would spend a total of $80 billion on AI-enabled data centers in fiscal year 2025. And in December, Japanese conglomerate SoftBank held a joint press conference with President Trump and announced $100 billion in AI-related spending in fiscal 2025. us
This rally has also spilled over into the stock market, which had an impressive 2024, thanks in large part to the performance of the so-called Magnificent Seven. These seven tech companies (Amazon, Apple, Google’s parent company Alphabet, Facebook and Instagram’s parent company Metaplatform, Microsoft, Nvidia, and Tesla) saw their stock price rise an average of 63% last year, with Nvidia soaring a whopping 171%. did. These companies now make up one-third of the total value of the S&P 500 index and account for more than half of its gains.
“Almost all of them are considered AI plays in some way,” Yardeni says.
Last year, about a third of all startup investments went to AI companies, the highest percentage ever, according to data from Crunchbase, which tracks venture capital data.
In addition to tech companies, stocks of power companies and infrastructure providers have also soared. Companies that will benefit from the rally include Constellation Energy and Vistra, both of which are believed to be focused on nuclear power. Last year, Constellation announced a partnership with Microsoft to restart one of its reactors at the Three Mile Island nuclear facility in Pennsylvania.
What’s missing from this situation at the moment is a new wave of jobs. However, some AI-focused investment announcements promise to ultimately create tens of thousands of jobs.
In fact, a key premise of AI is that it can automate human-centric roles and potentially lead to job losses. And while every new technology will eventually create some new occupations, it may also eliminate entire occupations. Research shows that bots are likely to take over many tasks once performed by humans, from writing to computer coding to illustration to translation, if they haven’t already done so. Masu.
Rather, the most direct beneficiary of the current investment pulse has so far been the construction industry, which continues to see healthy job growth of more than 2.5% annually. Data center construction spending increased 43.1% year over year, according to a study tracked by the Associated General Contractors of America.
Employment in the utilities sector is also currently at its highest level in more than 20 years.
But other sectors that benefited from previous technology-driven breakthroughs, particularly professional and business services, or white-collar jobs, have stagnated. Even traditional software engineering jobs are sparse. Job postings for these roles on Indeed are below pre-pandemic levels.
“We haven’t had a huge employment boom,” Yardeni said. Additionally, “AI increases programmer productivity, so overall we probably won’t see a significant increase in the number of programmers hired to create AI,” Yarday said. . “The reward has to be on productivity.”
Still, for better or worse, the U.S. economy, not to mention the stock market, is increasingly riding on the promise of AI benefits. One financial executive recently sarcastically summed up the enormous weight AI will have on the economy. According to the Financial Times, Apollo Global Management CEO Mark Rowan said at an internal event this fall, “We jokingly said we leveraged the entire U.S. withdrawal into Nvidia’s results.” “I sometimes say that,” he said, referring to the role of semiconductor manufacturers. Raise stock prices.
Indeed, some academics broadly agree that bets on AI will ultimately pay off in terms of increased productivity, but the promise of increasingly perceptive computers to the nation’s No one knows when or how the actual retribution will occur.
“These investments are a cost,” said Tania Babina, an associate professor of finance at Columbia Business School. In other words, tech companies invest with the hope of making a profit in the future. “So we hope the benefits will be broader than just technology leaders.”
