Client Question: What Role Is AI Investment Playing in the Economy and My Portfolio?
Sometimes, it seems that the economy is in a constant state of turmoil. Currently, the U.S. is embroiled in a trade war with Canada, energy prices remain elevated amid on-again, off-again negotiations with Iran and interest rates are rising. The labor market cooled over the summer, and inflation-adjusted wages have been roughly flat since 2020.
With all that’s going on, you’d be forgiven for thinking that the economy doesn’t feel particularly strong right now. Yet, despite these challenges, the U.S. economy has continued to grow.
Recently, we’ve heard from clients who are wondering what’s going on beneath the surface. One important contributor has been the enormous amount companies are spending on AI. But how much is AI investment contributing to economic growth? Can that pace of spending continue, and what happens if it doesn’t?
AI Has Become an Economic Growth Engine
Technology companies and other businesses are investing hundreds of billions of dollars in AI infrastructure, including chips, servers, data centers and networking equipment. Major technology companies are on track to spend $800 billion in 2026, surpassing peak dot-com-era spending levels. Some estimates suggest that AI investment is contributing to as much as a third of recent U.S. economic growth.
Building AI infrastructure creates demand for raw materials, semiconductors, machinery, electricity, construction services, as well as, other goods and services across the country and around the world.
The companies benefiting from the AI boom have helped drive gains in the stock market, increasing household wealth among investors. That can support consumer spending, particularly among higher-income households, which tend to own more stocks.
The question now is how long that cycle can continue—and what happens if it doesn’t.
The Risks of an AI Slowdown
Though still moving at an extraordinary pace, there are signs that growth in AI investment is slowing. Investors are becoming more cautious about the enormous investments required to build out AI infrastructure. There has also been increasing scrutiny of the data center industry.
Public opposition to new data centers has grown in some communities, while investors have raised questions about growth expectations, capital requirements and the risks associated with large-scale build-outs. Some companies have responded by reevaluating their plans to raise public capital, including by delaying or reconsidering IPOs.
If AI investment slows meaningfully, the effects could extend beyond technology companies. Reduced spending on data centers, chips, equipment and construction could reduce demand across those industries and weigh on overall economic growth.
However, that doesn't necessarily mean the economy or stock market would move in lockstep with AI spending. The U.S. economy is much broader than the technology sector, and other sources of growth could offset some of the impact.
What Can You Do as an Investor?
Not long ago, the main concern for many investors was how to participate in the AI boom. Now, some are wondering whether they have too much exposure to AI.
Both then and now, individual investors are unlikely to be able to identify AI winners or losers with certainty. AI technology touches nearly every type of business, and a diversified portfolio can provide exposure to potential growth while reducing the risk of depending too heavily on any single company, sector or trend.
Ultimately, no one knows what comes next. A significant slowdown in AI investment could weigh on broader economic growth. The market has experienced similar periods of rapid technological investment and subsequent disruption, including the dot-com boom and bust of the late 1990s and early 2000s.
On the other hand, some analysis suggests that periods of exceptionally strong tech growth could be followed by faster GDP growth over the next 12 months as businesses become more adept at using these technological advances to benefit their bottom lines.
For investors, the important question may be less about what happens next and more about whether their portfolios are positioned to weather different outcomes. If you have questions about how current economic conditions or AI investment could affect your portfolio, please reach out.
