The U.S. Economy 'Has No Way Back'! Stock Market, Investment, and Consumption Almost Entirely Rely on AI—Cooling Hype Could Trigger Chain Reaction

AI is no longer just a story for the tech industry—it has become a crucial pillar supporting the U.S. economy. From data center construction and chip procurement to corporate fundraising and stock market highs boosting household wealth, recent U.S. economic momentum is increasingly built on AI investment.

Yet, as the saying goes, water can carry a boat, but it can also capsize it. If the AI hype cools down or the bubble bursts, can the U.S. economy maintain its current resilience?

Michael Pearce, economist at Oxford Economics, estimates that AI investment and the stock market wealth effect together have recently contributed about one-third of U.S. economic growth. This means AI has evolved from a new business opportunity in the tech sector into a major engine underpinning the broader economy.

Jonathan Millar, economist at Barclays, candidly admits that the U.S. is "almost an AI-driven economy." Without the boost from AI investment, it would be hard to imagine the U.S. economy sustaining its current strength.

AI Investment Soars—Companies Spend $1.5 Trillion Annually

According to detailed breakdowns in the latest GDP report, capital expenditures by U.S. companies in AI-related fields continue to grow rapidly. Investments in software, data center construction, and computer and communications equipment, when annualized at current rates, now reach approximately $1.5 trillion—up more than $500 billion from around $1 trillion two years ago. Data centers are among the most direct beneficiaries.

The U.S. Department of Commerce reported that in June, annualized spending on data center construction reached $68.3 billion, up $21.5 billion from the same period last year. In contrast, private construction investment in housing, malls, hospitals, and other sectors declined by about $101.6 billion during the same period—indicating a rapid shift of U.S. construction resources toward AI infrastructure.

Additionally, the Institute for Supply Management’s (ISM) latest manufacturing survey shows many companies still reporting very strong demand for AI-related products.

AI Not Only Boosts GDP—It Stimulates Consumption via the Stock Market

The impact of AI on the economy extends beyond corporate investment. Another key driver is the wealth effect generated by the stock market.

Federal Reserve (Fed) data shows that U.S. household net worth reached $174 trillion in Q1 of this year, up $13 trillion from a year earlier—primarily driven by rising stock prices.

Since then, the S&P 1500 Index (which combines the S&P 500, S&P MidCap 400, and S&P SmallCap 600, covering about 90% of U.S. equity market value) has risen another ~15%, suggesting household wealth may have increased by several trillion dollars more. A major force behind this market rally is optimistic expectations about AI’s future.

Economists widely believe that as household assets grow, so does consumer spending. While estimates vary slightly across studies, households typically spend a few cents for every additional dollar in stock wealth—especially high-income groups who hold large amounts of equities, showing a more pronounced increase in spending capacity.

Pearce notes that without this AI investment boom, U.S. economic performance would likely have cooled significantly.

Behind AI’s Boom—Other Industries Are Being Squeezed

However, AI isn’t all positive. There is growing concern that massive capital and resources funneled into AI may be crowding out investment in other industries.

For example, data centers consume vast amounts of land, construction materials, electricity, and skilled workers—resources that could otherwise go toward housing, commercial facilities, or other industrial projects—but are now concentrated on AI infrastructure.

Michael Feroli, economist at JPMorgan Chase, points out that we cannot assume other economic activities would remain unchanged if AI were removed, because the massive investment and market frenzy around AI itself may already be displacing other economic activities.

Moreover, AI construction is pushing up prices for certain hardware components. For instance, memory chip prices continue to rise, increasing enterprise deployment costs and potentially feeding into higher end-product prices—further fueling inflation and weakening consumer purchasing power.

The More the U.S. Relies on AI, the More Risks Concentrate

Another notable point: not all U.S. AI-related spending directly counts toward GDP, as many critical components are still imported—such as memory chips and electronic parts.

From January to May this year, the U.S. imported approximately $90 billion worth of computer equipment, semiconductors, and electronic components from Taiwan—far exceeding the $20 billion imported during the same period in 2024. This highlights the AI supply chain’s continued heavy reliance on overseas manufacturing.

Rising chip prices also mean fewer devices can be purchased with the same budget—meaning some AI investment merely reflects cost inflation rather than actual output growth.

Even so, Pearce estimates that AI investment alone has recently contributed nearly one-quarter of U.S. GDP growth.

Will Capital Markets Keep Buying In?

Currently, the market widely expects the AI investment wave to continue in the short term. According to FactSet, five hyperscale cloud providers—Alphabet, Amazon, Meta, Microsoft, and Oracle—are projected to spend nearly $4 trillion collectively from 2026 to 2029—over $300 billion more than market estimates just a month ago. Such massive investment heavily depends on capital market support.

Barclays estimates that this year, combined bond issuance by these five firms plus SpaceX will reach $285 billion—far above last year’s $109 billion. This indicates AI development is becoming increasingly reliant on debt markets for funding.

If AI-related stocks suffer a sharp correction, undermining market confidence, or if bond market financing costs keep rising, this AI investment cycle propping up the U.S. economy could face serious challenges.

As Millar puts it, AI has now permeated every corner of the economy: "A large part of the U.S. economy is betting on this AI infrastructure boom continuing."