Big Tech's AI Spending Boom Boosts US GDP, But Hides Economic Struggles

The AI spending boom is boosting US GDP, but researchers at Pantheon Macroeconomics warn that it may be hiding looming problems. The massive investments by big tech companies are propping up the economy, but the US is also showing signs of struggle. Software-related spending is driving the GDP boost, while data center construction and energy spending have a lesser effect.

The AI spending boom is significantly boosting the United States' GDP, according to recent research by Pantheon Macroeconomics. The analysts found that AI-related investments have contributed a 0.5 percentage point difference to annualized GDP growth in the first half of 2025. Without this spending, the economy would have grown at less than 1%, indicating that tech companies are propping up a not-so-strong economy [1].

Big Tech companies, including Amazon, Google, Microsoft, and Apple, are continuing to invest aggressively in AI, with spending set to double for Amazon in 2025 and Google pledging an additional $10 billion. Even Apple, known for its frugality, is increasing its spending rate [1].

While AI spending is driving a significant portion of GDP growth, the broader economy shows signs of struggle. Researchers at Pantheon Macroeconomics note that investments in other sectors of the economy are far softer than headline numbers suggest. Pricing data show that retailers and wholesalers are being squeezed by tariffs, and major companies like Walmart and Nike have already or will soon raise their prices [1].

The S&P 500 has been driven by the "Magnificent Seven" tech companies, which have seen a 10% year-to-date growth, powered by their heavy AI investments. The tech sector's spending has added 0.5% to GDP growth, with software-related spending being the primary driver. However, imports of computer equipment, which are significant, have a lesser net effect on GDP [2].

Japan's economy also demonstrated resilience in the second quarter, with GDP growth of 1.2% year-on-year, primarily driven by strong domestic demand and corporate investment. This performance highlights the importance of domestic demand in economic growth, even in the face of global trade pressures [3].

In conclusion, while the AI spending boom is boosting the US economy, it may be hiding underlying economic struggles. The focus on software spending and domestic demand highlights the need for a balanced approach to economic growth. As the Federal Reserve considers rate cuts, investors should be aware of the potential risks and opportunities in the tech sector and the broader economy.

References:
[1] https://www.businessinsider.com/ai-spending-race-capex-gdp-us-economy-2025-8
[2] https://finance.yahoo.com/news/ai-spending-added-0-5-103916770.html
[3] https://www.ainvest.com/news/japan-gdp-surges-1-2-year-year-driven-strong-domestic-demand-2508/