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There’s a lot of talk about AI as a bubble. Since ChatGPT’s launch, AI stocks have driven 75% of S&P 500 returns, 80% of earnings growth, and 90% of capex growth, according to Morgan Stanley data.
But at this point, AI is no longer just a market story. The multi-trillion-dollar investments around it (emphasis on investment) have also become an anchor of economic growth.
In fact, AI spending (proxied through investment in software and computers) accounts for 6% of economic output but contributes more to GDP growth than consumer spending, the backbone of the U.S. economy.
The catch is that this boom is pure capex with a long and unclear ROI, driven by FOMO in an increasingly monopolistic, winner-takes-it-all tech sector. Even Big Tech execs admit as much.
“When you go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting,” Google CEO Sundar Pichai said during Alphabet’s earnings call last August.
“There’s definitely a possibility, based on past large infrastructure buildouts and how they led to bubbles, that something like that could happen here,” Meta CEO Mark Zuckerberg said on the Access podcast this month.
The risk isn’t just in overspending but also in the concentration of that spending.
By Morgan Stanley’s estimates, the top 10 AI spenders now account for roughly 33% of total spending among the 2,000 largest U.S. publicly listed companies.
That’s well ahead of the 25% share from the biggest telecom infrastructure builders during the dot-com bust.
“While this narrative may have longer to run, analogies to the 1999–2000 ‘Cisco moment,’ when a few companies slowed investment on fears of overheating, are increasing,” said Morgan Stanley CIO Lisa Shalett.
But not all spending is built on unrealistic predictions. Gil Luria, head of technology research, says Big Tech’s investment is still tied to real demand from real customers — not just hype.
“Microsoft Azure, AWS and Google Cloud have real demand from real customers and are deploying compute against that in a thoughtful way. Marginal players like OpenAI, Oracle and CoreWeave (and many others) are being propped up by NVIDIA generating demand that is not yet real,” he told me.
But for every megacap with real, cash-backed demand at the top, there are dozens of companies just trying to front-run a future that might never come.
If or when things break, analysts say one of the earliest canaries in the coal mine will be the jobs market. “Investors should pay more attention to the labour market. The dot-com bubble only burst once U.S. jobs started to be cut,” macro strategist Mike Bell told me.
The bottom line is that both markets and economic growth are hanging by a thin thread of capex “stimulus” from a handful of companies. And if AI is a bubble, the economy could very well pop with it.
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