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AI Boom Fizzles: Stock Market Faces Downturn
9 Nov
Summary
- AI investment surge may lead to stock market decline.
- Productivity gains from AI may not justify massive spending.
- Economic growth in Taiwan and South Korea to be impacted.
The AI investment boom is showing signs of waning, with Capital Economics predicting further stock market declines. While AI offers productivity benefits, projected revenues may not justify the massive expenditures by hyperscalers, who are expected to spend heavily through 2027. A substantial drop in AI-related capital expenditures is anticipated by 2028, which could trim U.S. GDP growth.
Economies more dependent on AI, such as Taiwan and South Korea, are projected to experience noticeable reductions in their GDP growth. The stock market is expected to react even sooner, with significant drops anticipated in tech-heavy indices. This downturn is also predicted to affect consumer spending through a wealth effect.
Despite these warnings, AI adoption is expected to continue boosting productivity by approximately 1% annually in the U.S. Capital spending may stabilize at a high level due to ongoing replacement and competitive pressures. Capital Economics forecasts slower U.S. GDP growth in 2028 but not a major downturn, as AI continues to drive efficiency.
