AI Investment Boom Propels U.S. Economy; Q2 GDP Annual Growth Rate Expected to Reach 2.1%

Investment in AI infrastructure continues to heat up, emerging as a significant force driving U.S. economic growth. The latest U.S. durable goods data shows a clear increase in orders for computers and related products in June. Over the past year, demand for AI hardware has grown at a pace rarely seen since the dot-com bubble era, and corporate equipment spending is expected to continue supporting economic performance in the second and third quarters.

MarketWatch reported on Monday (27th) that the U.S. government's June durable goods report showed new orders for computers and related products rose 3.1% month-on-month. On a year-over-year basis, AI-related hardware orders surged 17%. The last time such strong growth was sustained over a prolonged period was more than 25 years ago during the internet tech boom.

Stephen Stanley, Chief Economist at Santander Capital Markets U.S., pointed out that corporate capital expenditures remain robust, with AI infrastructure development being one of the main drivers.

Tech giants such as Amazon (AMZN-US), Google's parent company Alphabet (GOOG-US), and Microsoft (MSFT-US) are heavily investing in AI computing networks and data centers to gain a leading edge in this technological race. Beyond these tech titans, other companies are also continuously investing to expand their internal AI computing and application capabilities.

Corporate investment and consumer spending are the two primary engines supporting U.S. economic growth. In the first quarter of this year, business equipment spending closely tied to AI contributed 0.8 percentage points to U.S. GDP growth. The same period saw an annualized GDP growth rate of 2.1%, indicating that AI equipment investment provided significant support.

This contribution is about four times the average quarterly level since 2000, highlighting the importance of AI capital expenditure in the current U.S. economy.

Markets expect corporate equipment spending to remain strong in the second quarter, potentially allowing U.S. GDP to grow at an annualized rate of 2.1% for the second consecutive quarter.

Oren Klachkin, Economist at Nationwide Financial Markets, believes the second-quarter GDP report will likely show that business equipment spending continues to steadily support the economy. Moreover, the performance of June's durable goods orders suggests that this investment momentum could extend into the third quarter.

For a long time, Wall Street economists and the U.S. Federal Reserve (Fed) generally estimated the U.S. economy's long-term sustainable growth rate at around 1.8%.

However, as companies accelerate AI adoption, related investments not only boost equipment demand but may also improve labor productivity. As a result, some economists believe the economy's growth rate—without triggering excessive inflation—may now exceed previous estimates.

Currently, there are no clear signs that AI is causing widespread job losses. Although some tech industry figures previously warned that AI could rapidly replace large numbers of jobs, the primary impact of this current boom on the U.S. economy remains focused on expanding corporate investment and driving economic growth.

Nonetheless, AI infrastructure development is still in its early stages. Whether productivity gains can long-term offset massive capital outlays may take several years to confirm.

Another concern for the market is whether this AI investment boom could repeat the late-1990s dot-com bubble.

Between 1994 and 1999, U.S. computer-related investment rapidly increased and set records. After the bubble burst, related spending sharply contracted from 2001 to 2005, and many tech companies collapsed due to business models unable to justify their high valuations.

Whether AI will follow the same path remains unanswered. With data centers, chips, and computing networks still in the early stages of development, it remains to be seen whether investment scale can translate into revenues sufficient to support corporate profits.

In addition to overheating risks, AI spending is beginning to exert upward pressure on prices for certain goods.

AI servers and consumer electronics both require memory and high-performance chips. As data centers absorb large quantities of these components, the costs for smartphone, tablet, and other electronics manufacturers may also rise. Apple (AAPL-US) recently raised the prices of iPads and other devices.

The rapid expansion of data center construction is also increasing demand for certain key construction materials, meaning AI investment could further exacerbate inflationary pressures while boosting economic growth.

If high inflation persists, the Federal Reserve may be forced to raise interest rates. Higher rates would increase corporate funding costs, thereby constraining AI-related investment and weakening the capital expenditure momentum currently supporting the U.S. economy.

Priscilla Thiagamoorthy, Senior Economist at BMO Capital Markets, believes that AI investment is a double-edged sword for the Fed—it drives economic growth but may also fuel inflation.