The massive capital investment in AI by major tech companies has the potential to significantly boost national productivity. This productivity gain could, in turn, lower inflation, providing the Federal Reserve with a rationale to decrease interest rates.
Increased AI spending boosts AI-supplier equities but requires more corporate borrowing, a negative for credit markets. Conversely, a spending slowdown would hurt equity market confidence, which could also drag down credit markets by association, creating a tough spot for bondholders.
The capital expenditure on AI by a handful of U.S. hyperscalers is projected to hit $600 billion this year alone. This figure is staggering, nearly matching the entire planned 2025 CapEx for every non-technology company combined in the S&P 500.