Bubble or not, AI spending is keeping the US economy humming

US companies are becoming increasingly hooked on artificial intelligence spending, and questions are growing whether this investment boom is hiding a weaker economic picture.

Despite a contraction in the first quarter, following President Donald Trump's sweeping tariff announcement, the US economy has defied slowdown expectations this year, with estimations of 2025 GDP growth ranging between 1.7 per cent and 3 per cent.

While moderate increases in tariffs have partially contributed to these revisions, there is another engine behind US growth this year: AI.

Analysis from global investment firm KKR found that AI-related capex for the four largest hyper-scalers was more than $350 billion this year. UBS said it forecasts global AI capex spending to hit $423 billion in 2025 (up from its previous $375 billion estimate), before eclipsing $500 billion next year.

Tim Bajarin, a technology analyst who has served as a consultant for Apple, IBM, Xerox and Microsoft, said that there’s “cause for concern” as to whether the economic growth is substantive, but dismissed comparisons to the 1990s-era dotcom bubble.

“The fundamentals are strong compared to other hype cycles,” Mr Bajarin said, noting how AI tools such as Gemini and ChatGPT have hundreds of millions of users.

“The AI technology is richer, deeper and more focused." He added that the billions of dollars being poured into data centres have “lasting value”.

AI in the data

New projections released by the US Federal Reserve showed America's economy will expand at a 2.3 per cent pace next year, an increase of half a percentage point from its September forecast.

Part of this has been resilient consumer spending, Fed chairman Jerome Powell told reporters last week.

“And, to another degree it is … that AI spending on data centres and related to AI that has been holding up business investment,” he said.

The AI boom has led to strong growth in business equipment investment this year. Investment in equipment and software related to AI is forecast to grow by 9.9 per cent this year, according to the Equipment Leasing and Finance Foundation.

And while tariffs have weighed down exports and imports, Matthew Martin, senior US economist at Oxford Economics, estimated that imports for computers and semiconductors are up between 40 per cent and 50 per cent year-on-year.

“So the fact that imports are still growing there, despite increased tariffs, obviously shows that there's quite a bit of strength there,” he said.

With demand for data centres increasing, concerns are mounting over the rising energy costs for these large-scale infrastructure projects that require huge amounts of energy to func