Spending AI Infrastructure affects the "real" economy as well

Lydia DePillis, The A.I. Spending Frenzy Is Propping Up the Real Economy, Too, NYTimes, Aug. 27, 2025.

It’s no secret by now, as investors await an earnings report on Wednesday by the chip behemoth Nvidia, that optimism around the windfall that artificial intelligence may generate is pumping up the stock market.

But in recent months, it has also become clear that A.I. spending is lifting the real economy, too.

It’s not because of how companies are using the technology, at least not yet. Rather, the sheer amount of investment — in data centers, semiconductor factories and power supply — needed to build the computing power that A.I. demands is creating enough business activity to brighten readings on the entire domestic economy.

Companies will spend $375 billion globally in 2025 on A.I. infrastructure, the investment bank UBS estimates. That is projected to rise to $500 billion next year. Investment in software and computer equipment, not counting the data center buildings, accounted for a quarter of all economic growth this past quarter, data from the Commerce Department shows.

(Even that probably doesn’t reflect the whole picture. Government data collectors have long had trouble capturing the economic value of semiconductors and computer equipment that large tech companies like Meta and Alphabet install for their own use, rather than farming out to contractors, so the total impact is likely to be higher.) [...]

But, AI tools not profitable yet

Companies are promising even more spending, but their ability to deliver, he noted, depends on whether their expectations are fulfilled. Most A.I. tools are not profitable currently, and they will have to generate huge cash flows over time for the tech companies to recoup their investments.

Will it last?

The intensity of the A.I. investment wave has raised uncomfortable parallels to the last time the tech industry funneled billions of dollars into infrastructure to support a new technology with high expectations of future profits.

In 2001, after the stock market crash brought on by the collapse of speculative dot-com companies, the telecommunications sector crumpled, too: Companies that had taken on debt to build out fiber-optic networks failed, creating an implosion that rippled through the global economy.

Already, there are a few signs of caution. The chief executive of OpenAI, Sam Altman, raised eyebrows this month with remarks that the sector is “overexcited” and that some players will lose a lot of money. UBS, while generally positive on the industry, wrote in a note to clients that there could be some “indigestion” over the capital expenditures underway.

There's more at the link.