Recent analyses indicate that spending on artificial intelligence (AI) is the key factor keeping the US economy from slipping into a recession. Investments in datacenter infrastructure and model development have emerged as the only substantial growth areas amidst ongoing trade challenges, high borrowing costs, and tariff disruptions.
According to James Egelhof, chief US economist at BNP Paribas, the surge in AI investments has fostered a sense of optimism among businesses regarding imminent robust growth and productivity enhancements. “AI has kept the economy out of a recession,” Egelhof stated during a recent interview with Yahoo Finance.
Similarly, Torsten Sløk, chief economist at Apollo Global Management, noted that corporate capital expenditures outside of AI are virtually stagnant at this time. Uniquely, AI spending has remained resilient despite the Federal Reserve”s interest rate hikes. Sløk explained that investments in datacenter infrastructure are primarily funded by the rising equity valuations of major tech firms, including the so-called “Magnificent Seven,” which comprises companies like Microsoft, Amazon, Alphabet, and Nvidia.
Analyst firm Omdia forecasts that global capital expenditures in datacenters will exceed $657 billion by 2025, nearly doubling the figures from just two years prior, with the United States leading in this sector. Notably, Amazon”s annual spending on datacenters alone surpasses $100 billion, an amount comparable to the entire GDP of Costa Rica.
Economist Jason Furman, a former Deputy Director of the US National Economic Council, estimated that an overwhelming 92 percent of economic demand during the first half of this year originated from information processing equipment and software. He expressed hopes that AI will eventually enhance productivity by enabling more efficient use of resources. However, he also noted that current productivity growth has not been particularly remarkable.
Numerous studies reflect a growing skepticism regarding the return on investment for AI initiatives. A trial conducted by the UK government with Microsoft”s M365 Copilot showed no measurable increase in productivity, revealing that while some tasks became faster, others took longer. Research in the US indicated that companies have invested between $35 billion and $40 billion in generative AI projects, yet an alarming 95 percent of those businesses reported no returns on their investments.
Concerns about the sustainability of ongoing spending patterns are mounting. Management consultants at Bain & Company have estimated that current trajectories would necessitate the tech sector to achieve $2 trillion in annual AI sales by 2030, raising fears of a potential tech bubble. Recently, the Bank of England”s Financial Policy Committee cautioned about the increasing risk of a market correction due to inflated valuations in tech and AI stocks.
Financial analysts have voiced particular apprehension regarding OpenAI”s valuation of $500 billion, especially given that the company has yet to turn a profit. OpenAI”s chief, Sam Altman, acknowledged the presence of a bubble in the AI industry but appeared unconcerned about the implications. A report suggested that OpenAI is currently losing approximately three times more money than it generates, with only 5 percent of ChatGPT”s 800 million users subscribing to the paid service.
