The US economy has become increasingly dependent on AI and AI-adjacent spending, with ING estimating that tech investments, largely dominated by AI and data centers, account for a third of year-over-year economic growth in 2026. Goldman Sachs' chief equity strategist noted that AI investment is driving half of all profit growth in the S&P 500. Without this AI frenzy, the economy would likely be in a much weaker position, potentially facing stagnation or outright contraction if the AI growth significantly slows. Fitch Ratings ran a scenario where an AI-related downturn could lead to US stock prices falling around 35% over six months, a decline comparable to past financial busts.
A significant concern is the sheer scale of debt being issued to fund the rapid expansion of data centers by hyperscalers like Google, Amazon, Microsoft, Meta, and Oracle. Estimates suggest $132 billion in debt issuance this year alone for data center buildout. With fragile bond markets and 10-year US Treasury yields hovering around 5%, the size of these debt piles could trigger a market rethink. Analysts project that the abrupt jump in costs as contracts mature and data centers come online could reach an eye-watering $700 billion next year and over $800 billion in 2027.
The flood of cash into AI projects, including data centers and advanced chips, has fueled robust earnings and investor optimism. The stock market has shown strong performance this year, with the Dow Jones Industrial Average climbing nearly 8%, the S&P 500 jumping 11%, and the Nasdaq surging 13%. Top AI firms have seen even greater gains, with Nvidia's shares climbing 18% and Advanced Micro Devices soaring 155%. These gains have extended beyond the AI sector to construction firms building data centers and equipment manufacturers. However, potential new regulations, rising interest rates, and the high cost of corporate borrowing could dampen investment and cool off some stocks. Goldman Sachs highlighted that AI infrastructure spending and government borrowing are competing for the same capital, driving up the global cost of capital and potentially putting downward pressure on equity prices if profit growth slows.
