Investments in artificial intelligence are increasingly driving economic growth in the United States.
These days, a lot of customers engage directly with AI through programs like ChatGPT or condensed search results on Google or Apple. Additionally, they might be coming to AI-generated images on social media.
But the growth isn’t being driven by that. Rather, it refers to the expenditures made to establish the infrastructure of electricity and raw computer power required to support those applications as well as any that may develop from them in the future. Consider the design of data centers, computer chips, information processing devices, and hardware for electrical transmission.
According to Ed Yardeni, president of Yardeni Research, a market and economy consulting firm, AI has directly affected the economy through capital expenditures made by [tech companies] and other businesses on the hardware and software required to increase their cloud computing capacity in order to meet the growing demand for AI computing.
As of right now, there haven’t been many jobs or financial returns to this increasing investment in AI technology and infrastructure.
Despite this, the stock market has seen enormous profits.Skanda Amarnath, executive director of Employ America, has estimated that investments in developing AI technology accounted for 16% to 20% of real GDP growth in the third quarter of 2024 alone, and this percentage is only projected to rise. Amarnath stated in a Bloomberg News piece published Monday that AI-related investments are poised to overtake the GDP share ascribed to the late 1990s dot-com boom and reach the size of housing during the 2000s bubble as a percentage of overall spending outlays.
“It’s beginning to appear in the data,” Amarnath told NBC News. This indicates that it has greater macro relevance and is likely to be a driver of growth in 2025.
Proponents of the AI rollout are hailing AI as one of the most significant technological advancements in human history, in addition to its potential to revolutionize corporate efficiency. For now, it seems like a large portion of the current cycle is being driven by a FOMO attitude rather than by the need for quick riches.
Superintelligent tools have the potential to significantly boost scientific creativity and discovery, surpassing our current capacity, which would lead to a significant increase in wealth and prosperity. In a recent blog post, Sam Altman, the CEO of OpenAI, the company that created the first ChatGPT, writes.
The present AI investment cycle, like the dot-com and housing ones, has already been described by a few dispersed voices as a bubble that could burst and cause a downturn.
In a July report released by the investment banking behemoth, Jim Covello, head of equity research at Goldman Sachs, stated that overbuilding something the world doesn’t need or isn’t prepared for usually ends badly. Between the peak of the dot-com boom and the launch of Uber, the NASDAQ fell by over 70%.
However, prominent announcements about AI are still piling up in the interim. In collaboration with a billionaire developer from the United Arab Emirates, President-elect Donald Trump announced a $20 billion agreement on Tuesday to construct new data centers. Later that day, the cloud computing company AWS from Amazon revealed it would invest $11 billion in Georgia in AI-related projects. Microsoft revealed earlier this month that, for its fiscal 2025, it would invest a total of $80 billion on AI-enabled data centers. Additionally, Trump and Softbank, a Japanese firm, staged a joint news conference in December to announce $100 billion in U.S. spending on AI.
The stock market, which had a fantastic 2024 partly because to the performance of the so-called Magnificent Seven, is also seeing the benefits. Amazon, Apple, Alphabet, the parent company of Google, Meta Platforms, the parent company of Facebook and Instagram, Microsoft, Nvidia, and Tesla all saw average gains of 63% last year, with Nvidia seeing a staggering 171% increase. Collectively, these businesses now account for over half of the S&P 500 index’s gains and one-third of its total value.
According to Yardeni, almost all of them are perceived as AI plays in one way or another.
According to data from Crunchbase, which analyzes venture capital data, last year around a third of all startup investments went toward AI-related startups, the largest percentage on record.
In addition to software companies, share prices of infrastructure and electricity providers have surged. Constellation Energy and Vistra, two companies perceived as nuclear power specialists, are among those profiting from the run-up. In order to restart one of the reactors at the Three Mile Island nuclear plant in Pennsylvania, Constellation revealed last year that it was collaborating with Microsoft.
A surge of new jobs is currently absent from the picture, but certain investment announcements centered around AI indicate that tens of thousands of jobs may eventually be created.
The potential for AI to automate human-centric tasks, which could result in job losses, is actually a fundamental tenet of the technology. Furthermore, all new technologies have the potential to eliminate entire professions while simultaneously generating some new ones. Numerous tasks that were previously completed by humans, such as writing, computer coding, illustration, and translation, are likely to be replaced by bots, if they haven’t already, according to surveys.
The construction industry, which continues to witness robust yearly job growth of more than 2.5 percent, has instead benefited the most directly from the current investment pulse thus far. According to surveys monitored by the Associated General Contractors of America, construction-related spending on data centers increased 43.1% from the previous year.
Additionally, employment in the utilities sector is at levels not seen in almost two decades.
However, other industries that profited from earlier tech-led booms, particularly business and professional services, or white-collar jobs, have come to a standstill. There are few positions even in traditional software engineering:Indeed’s job listings for those positions have reverted to their pre-pandemic levels.
According to Yardeni, it hasn’t led to a significant increase in employment. He went on: “AI makes programmers more productive, so perhaps overall, we won’t see a significant increase in the number of programmers hired to create AI,” Yardei added. Productivity will have to be the reward.
For better or worse, however, the stock market and the U.S. economy are increasingly relying on the promise of an AI payoff. The excessive impact of artificial intelligence on the economy was recently summed up in a humorous way by a financial executive. According to the Financial Times, Marc Rowan, CEO of Apollo Global Management, joked at a corporate event this fall that “sometimes we levered the entire retirement of America to Nvidia’s performance.” Rowan was referring to the chipmaker’s role in driving equities upward.
While there is general consensus that AI investments will eventually result in higher productivity, other scholars assert that no one can predict when or how the public will actually benefit from the promises made by increasingly sentient computers.
According to Tania Babina, an associate professor of finance at the Columbia Business School, these expenditures are expenses, indicating that IT companies are making investments in the hopes of making money later on. Therefore, it is hoped that the advantages would extend beyond these tech giants.
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