"But some analysts are starting to worry about how much of that growth is concentrated in AI.A recent note from Pantheon Macroeconomics said that private fixed investment-a measure of how much companies are spending-"is rising only due to AI-related spending." Analyst Oliver Allen published a chart this morning showing that all other private fixed investment is actually in decline: "Capex intentions remain depressed, suggesting investment outside of AI-linked sectors remains weak," he told clients in a note seen by Fortune."
"Deutsche Bank said much the same thing in a recent note discussing whether AI was a bubble. "Investment in AI-related sectors is critical to GDP growth [and the] US would be close to recession this year if it weren't for tech-related spending, as other spending has flatlined post-Covid," analysts Adrian Cox and Stefan Abrudan wrote. The scale of capital expenditure (capex) investment going into AI is gargantuan."
"Bank of America's Justin Post and Nitin Bansal estimate that AI capex from just five "hyperscalers" ( Alphabet, Meta, Microsoft, Amazon, and Oracle) will total $399 billion this year and rise to over $600 billion in the years to come. Increasingly, that AI capex will likely be funded by debt. The big tech companies have such healthy cashflow and robust balance sheets that it's easy for most of them to add debt without harming their bottom lines, BofA says. That debt is already breaking records. "Net supply [of new debt] from AI-related issuers in the USD credit market has crossed $200 billion in"
Q3 U.S. GDP growth is expected to rise about 3.2% year-on-year, coinciding with a near-record S&P 500. Analysts note that much of the expansion in private fixed investment is driven solely by AI-related spending, while other private investment categories are declining. Bank of America and other firms estimate AI capex from major tech "hyperscalers" will reach hundreds of billions of dollars and continue rising. Increasing portions of that capex are likely to be financed with debt, supported by strong cashflows and balance sheets at big tech firms. Net new debt issuance tied to AI-related issuers has already hit record levels.
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