Just a week after hitting new all-time highs, U.S. stocks are showing signs of strain as investors begin to worry about the returns on billions of dollars invested in AI.
For American consumers, this could mean a more fragile economy in the future.
After markets closed Thursday, the S&P 500 was down 1% from its record high a week ago, while the tech-heavy Nasdaq had fallen more than 3% below its peak last week.
Behind the declines: Anthropic’s quarterly revenue growth slowed, the Financial Times reported Wednesday. The AI giant is expected to be worth more than $1 trillion when it goes public, and at nearly $17 billion, its revenues are still huge and the company says it’s profitable.
Concerns are also growing over whether Chinese memory technology companies could weaken, or even overtake, their Western rivals. And even though the construction of AI data centers has created a global shortage of processing chips, there are concerns that Chinese mass production of memory chips could flood the market with oversupply.
Meanwhile, investors have begun selling the bonds backing some data centers, mainly out of fear that AI revenues won’t be enough to cover the massive sums that have been borrowed to finance the construction of the centers.
On Thursday, economist Ed Yardeni, a well-respected market commentator, lowered his year-end target for the S&P 500 to 7,900 from 8,400, due to what he said was growing investor caution about the artificial intelligence trade and lingering doubts about inflation and rising interest rates. The S&P 500 currently sits at around 7,600 points.
Most Americans don’t directly own tech stocks, let alone work in AI, which a growing number of studies suggest may have begun to limit job opportunities. Yet the development of AI has largely helped support the economy, at least on paper.
Nearly half of the growth in the U.S. economy this year is attributable to technology-related spending. These investments also boosted the stock market even as a growing number of other companies saw sharp declines in their stock prices.
Technological advances in turn created a wealth effect that helped stabilize U.S. consumer spending and, by extension, the job market. The result was robust economic growth, even as low- and even middle-income households continued to struggle with stubborn inflation and falling incomes.
“While higher interest rates, higher oil prices and persistent inflation create risks for the economy, strong positive forces such as investment in AI infrastructure, high employment levels and steady wage growth continue to offset the risks,” Wells Fargo CEO Charlie Scharf said earlier this week.
But other economists say consumers already face a host of stressors that risk weakening their position. The Bureau of Labor Statistics reported Thursday that business inflation rose to its highest rate since December 2022 — price growth that could eventually pass through to consumers.
If tech spending – and stocks – show signs of a sustained decline, U.S. economic growth as a whole would likely be at risk.
“Higher interest rates, high energy prices, slow job growth and a sell-off in stocks (if this continues) all pose downside risks to consumer spending,” Citi analysts wrote in a note Thursday.
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