The Responsible Investor
What Role Is AI Investment Playing in Your Portfolio?
Sometimes, it seems that the economy is in a constant state of turmoil. Currently, the U.S. is embroiled in a trade war with Canada, energy prices remain elevated amid on-again, off-again negotiations with Iran and interest rates are rising. The labor market cooled over the summer, and inflation-adjusted wages have been roughly flat since 2020.
With all that’s going on, you’d be forgiven for thinking that the economy doesn’t feel particularly strong right now. Yet, despite these challenges, the U.S. economy has continued to grow.
Recently, we’ve heard from clients who are wondering what’s going on beneath the surface. One contributor has been the amount companies are spending on AI. But how much is AI investment contributing to economic growth? The question is: can that pace of spending continue, and what happens if it doesn’t?
AI Has Become an Economic Growth Engine
Technology companies and other businesses are investing hundreds of billions of dollars in AI infrastructure, including chips, servers, data centers and networking equipment. Major technology companies are on track to spend $800 billion in 2026, surpassing peak dot-com-era spending levels. Some estimates suggest that AI investment is contributing to as much as a third of recent U.S. economic growth.
Building AI infrastructure creates demand for raw materials, semiconductors, machinery, electricity, construction services, as well as other goods and services across the country and around the world.
The companies benefiting from the AI boom have helped drive gains in the stock market, increasing household wealth among investors, which can then support consumer spending.
Another question is: how long can this infrastructure development cycle continue, and what happens if it doesn’t?
The Risks of an AI Slowdown
AI investment continues to grow, but the scale of spending has raised questions about how long the current pace can continue. Investors are paying closer attention to whether AI's revenue and productivity gains will ultimately justify the significant investments in data centers, chips, and other infrastructure. Research from the Federal Reserve notes that much of AI’s economic impact so far has been concentrated in investment and that broader effects on productivity and the labor market remain less clear.
These questions are not unusual during periods of rapid technological change. The dot-com era also brought a wave of investment as businesses prepared for the growing role of the internet. While today’s circumstances are different, the experience serves as a reminder that the long-term economic benefits of a new technology may take time to become clear. Similar questions remain around AI, particularly whether today’s high levels of investment will ultimately translate into broader productivity and economic gains. The Federal Reserve Bank of Richmond notes that AI investment has already surpassed the contribution to GDP growth associated with the dot-com boom. At the same time, the eventual effects of AI adoption and productivity remain uncertain.
As investors pay closer attention to the level of investment required to build out AI infrastructure, the growth of data centers is creating other challenges. Their large electricity needs are contributing to rising U.S. electricity demand and may require additional power generation and infrastructure. If electricity demand grows faster than available supply, it could put additional pressure on the grid and affect electricity prices.
However, that doesn't necessarily mean the economy or stock market would move in lockstep with AI spending. The U.S. economy is much broader than the technology sector, and other sources of growth could offset some of the impact.
What Can You Do as an Investor?
Not long ago, the main concern for many investors was how to participate in the AI boom. Now, some are wondering whether they have too much exposure to AI.
Both then and now, individual investors are unlikely to be able to identify AI winners or losers with certainty. AI technology touches nearly every type of business, and a diversified portfolio can provide exposure to potential growth while reducing the risk of depending too heavily on any single company, sector or trend.
Ultimately, no one knows what comes next. A significant slowdown in AI investment could weigh on broader economic growth. The market has experienced similar periods of rapid technological investment and subsequent disruption, including the dot-com boom and bust of the late 1990s and early 2000s.
On the other hand, some analyses suggest that periods of exceptionally strong tech growth could be followed by faster GDP growth as businesses become more adept at using these technological advances to benefit their bottom lines.
For investors, the important question may be less about what happens next and more about whether their portfolios are positioned and diversified to weather different outcomes. If you have questions about how current economic conditions or AI investment could affect your portfolio, please reach out.
Learn more about Derek Van Calligan
Hello! I’m Derek, a senior wealth advisor and director of investment research at Allodium Investment Consultants, located in Minneapolis, MN. I am passionate about helping individuals and families build holistic financial plans to help them reach their goals. When I’m not helping our clients make investment decisions, I enjoy spending time in the mountains in Colorado—skiing, fishing and hunting with my wife, Kelly, and my son, Archie. I am also an active church member and volunteer at Big Brothers Big Sisters and Junior Achievement.
The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.