An AI Downturn May Put US Economy at Risk

The giants of the AI industry have begun a necessary conversation about the speed and safety of development, writes Jeran Wittenstein at Bloomberg. His analysis doesn't take a side in that debate. Instead, it focuses on the economic fallout that might ensue from any such slowdown, and it's all but impossible to overstate, he writes. "People may not fully grasp just how wound up the market and the economy is in all of this," is how Jim Morrow of Callodine Capital Management puts it. "There are just so many things to unravel if it starts." By Bloomberg Economics' estimate, AI-linked investment is responsible for about half of recent US GDP growth.

Nearly $33 trillion in market value has been added to the S&P 500 since late 2022, largely concentrated in a small group of companies whose futures hinge on AI data centers, chips, power, and cooling. One economist—Torsten Slok of Apollo Global Management—warns that if the spending doesn't pay off, the Nasdaq 100 could fall by as much as 50%. Read the full analysis.