AI investment boom is boosting the real economy alongside stock markets

Lydia DePillis

 

It’s no secret by now that optimism around the windfall that artificial intelligence may generate is pumping up the stock market.

But in recent months, it has also become clear that AI spending is lifting the real economy, too. 

It’s not because of how companies are using the technology, at least not yet. Rather, the sheer amount of investment — in data centers, semiconductor factories and power supply — needed to build the computing power that AI demands is creating enough business activity to brighten readings on the entire domestic economy. 

Companies will spend $375 billion globally in 2025 on AI infrastructure, the investment bank UBS estimates. That is projected to rise to $500 billion next year. Investment in software and computer equipment, not counting the data center buildings, accounted for a quarter of all economic growth this past year, data from the Commerce Department shows. 

(Even that probably doesn’t reflect the whole picture. Government data collectors have long had trouble capturing the economic value of semiconductors and computer equipment that large tech companies like Meta and Alphabet install for their own use, rather than farming out to contractors, so the total impact is likely to be higher.) 

The big tech companies are the largest financiers of the frenzy, but private equity firms have been pouring in capital, too.  Brookfield Asset Management, which manages a vast real estate portfolio, estimates that AI infrastructure will sop up $7 trillion over the next 10 years. 

The torrent of cash comes as the effects from Biden-era infrastructure subsidies fade, erratic tariffs freeze corporate decision making and high borrowing costs deter less lucrative real estate projects such as housing and warehouses. In 2025, spending on data center construction — not including the cost of all the technology they house — will exceed investment in traditional office buildings, according to the Dodge Construction Network. 

“The expectations of very high returns in this industry are trumping the high interest rates that we are facing today,” said Eugenio Alemán, chief economist with the financial services company Raymond James. 

Companies are promising even more spending, but their ability to deliver, he noted, depends on whether their expectations are fulfilled. Most AI tools are not profitable currently, and they will have to generate huge cash flows over time for the tech companies to recoup their investments. 

“There is always a risk that very little of what they say is going to pan out,” Dr. Alemán said. “So whenever they figure out that it is not what they thought, there is going to be a large correction.”