Waller: AI is drawing capital from other uses, would like to see investment in other sectors

Waller: AI is drawing capital from other uses, would like to see investment in other sectors

AI-Driven Investment Reshapes Economic Priorities, Sparks Calls for Balanced Growth

Artificial intelligence (AI) has emerged as a dominant force in the U.S. economy, driving growth through surges in technology-related investment. In 2025, AI-linked capital expenditures contributed approximately 1.1% to GDP growth, outpacing traditional drivers like consumer spending. This shift reflects a broader reallocation of capital toward data centers, hardware, and infrastructure, with tech-related investment surging 4.3 percentage points in Q2 2025 alone. Hyperscalers such as Meta, Amazon, and Microsoft have led this charge, allocating $342 billion to capital expenditures in 2025—a 62% increase from the prior year.

However, this rapid expansion has raised concerns about resource allocation. Federal Reserve Governor Christopher Waller highlighted that AI's dominance risks drawing capital away from other sectors, potentially creating imbalances in the economy. Data center construction, for instance, has consumed significant liquidity, with firms reinvesting 60% of operating cash flow into capital expenditures—the highest level on record. This trend has coincided with tighter credit conditions for non-tech industries, contributing to a rise in bankruptcies among non-technology firms in 2025.

Waller emphasized the dual-edged nature of AI's economic impact. While the technology has boosted productivity and lowered unit labor costs, its concentrated growth risks undermining broader economic resilience. "Technological disruption is inevitable," he noted, "but adaptation must ensure gains are broadly shared and not confined to a narrow set of sectors." The Federal Reserve Bank of St. Louis reported that AI-linked investments accounted for nearly 1 percentage point of real GDP growth in the first three quarters of 2025, underscoring its macroeconomic significance.

Investors are beginning to respond to these dynamics. A shift toward "heavy asset" stocks and AI-resistant sectors has emerged as a hedge against overconcentration risks, reflecting growing caution about speculative excess in AI infrastructure. Waller advocated for a balanced approach, urging policymakers and market participants to support innovation while fostering diversification to mitigate vulnerabilities.

As AI reshapes economic priorities, the challenge lies in sustaining its productivity benefits without exacerbating sectoral imbalances. The coming months will test whether this high-stakes investment cycle can deliver broad-based growth or if recalibration will be necessary to address emerging risks.