US Economic Growth Overly Reliant on AI Capex, Poses Key Risk, UBS Warns

The recent pickup in U.S. business investment and manufacturing is more dependent on the artificial intelligence boom than many investors realize, creating a key risk for the economy's growth prospects, according to a note from UBS.

AI's Ripple Effect

In a note to clients on Thursday, UBS economist Jonathan Pingle observed that while signs of broader growth and a "manufacturing renaissance" have emerged this year, much of this strength can be traced back to the massive buildout of AI infrastructure. "The powerful tailwind of the AI buildout is like a rising tide lifting all boats," Pingle wrote.

This spending has created a ripple effect, boosting demand for traditional industrial firms. UBS highlighted how this trend benefits companies beyond the tech sector:

• GE Vernova is seeing demand for gas turbines used to power data centers.
• Caterpillar has reported strong sales of generators, also critical for data center operations.
• Demand has also spread to inputs such as steel, machinery, wiring, and cable.

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A 'Singular' Growth Driver

This heavy reliance suggests the rest of the economy would be significantly weaker without the stimulus from AI-related capital expenditure (capex). Pingle argued that the U.S. economic expansion is now "more reliant on the AI/tech capex buildout than ever," a situation that carries implications for growth, risk, and monetary policy.

The bank's analysis indicates that GDP growth, business investment, and inventories are all being broadly supported by the direct and indirect effects of AI spending. "The singular nature of the driving shock, AI, is both unusual and exceptional at the moment," Pingle stated. This concentration on a single driver makes the broader economy vulnerable to any slowdown in AI investment.