OpenAI released ChatGPT in November 2022.
That was just a month after the stock market bottomed from the bear market and a few months after the inflation rate topped out at 9%.
At that point almost everyone assumed a recession was a foregone conclusion.
It didn’t happen.
Would we have seen an economic contraction if our tech overlords didn’t go on an insane AI spending spree from there?
Could there have been an even worse downturn from the trade war earlier this year without the massive AI spend?
We don’t live in a world with counterfactuals.
But this feels like the week when everyone decided to put data behind the idea that AI has more or less been carrying the economy and markets.
There were three charts I saw that essentially all say the same thing — the tech giants are spending a boatload of money on the AI arms race.
Here’s one from Sherwood News on the forward capex estimates for five of the biggest spenders:
Every step is just a little steeper.
Here’s a similar chart from The Wall Street Journal on four of the Mag 7:
Up and to the right.
And finally The Financial Times shows the capex spend over the last three years:
Microsoft, Google, Amazon, and Facebook spent a combined $151 billion in 2023, $246 billion in 2024, and are forecasted to exceed $320 billion this year in competition for AI supremacy.
Spending by the Mag 7 was up 40% in 2024 while the other 493 stocks in the S&P 500 saw capex increase by less than 4%.
The sheer amount of spending boggles the mind but makes sense when you consider the opportunity in AI.
It’s not only powering the stock market but it’s now having a real impact on the economy. Ren Mac shared what may be the chart of the year so far:
This is nuts. Consumer spending makes up ~70% of the U.S. economy. AI spending is currently adding more to GDP than consumer spending!
Now what?
How this all shakes out, no one knows.
My best guess is there are two outcomes, both of which will look obvious with the benefit of hindsight if things play out either way:
(1) Of course these companies crashed and burned. They spent way too much. The ROI was less than expected. Expectations were far too high. It was obvious!
(2) Of course these companies continued to dominate. They threw a kajillion dollars at a game-changing technology. AI changed the world and to the victor go the spoils. It was obvious!
I just don’t know which one it will be.
Maybe option (1) will go first followed by option (2). Or we get something in the middle.
This is a fascinating time in the macro landscape.
The labor market might be softening. Housing and construction activity remain muted due to high mortgage rates. Tariffs could slow consumer spending.
Yet the biggest, most important companies in the stock market are pot-committed and continue to spend like your drunk friend in Vegas who just went to the ATM for the third time before midnight.
AI capex might save the economy yet again if all of this spending translates into immediate returns for the Mag 7.
If it doesn’t…watch out below?
We have to experience an economic contraction eventually…right?
Maybe AI excesses will do the trick.
Or maybe we’ll go the rest of this decade without another recession because of a transformative technological innovation.
I would love to give you the definitive answer but I’m not sure anyone knows how this all plays out.
Further Reading:
Mega Cap World Domination
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