AXIOS (Neil Irwin) - Quantifying the AI boom crowding-out effect
When investment on the scale of the current AI boom occurs, it inevitably has to come at the expense of something. All the resources devoted to building data centers and developing AI models would otherwise go to something else. The big picture: This crowding out is smaller than you might expect, Goldman Sachs economists find in a new note. - But it does exist, they say, and takes the form of displacing other tech investment and construction , as well as raising corporate borrowing costs. By the numbers: AI investment will be about $600 billion this year, some 2% of GDP, accounting for 10% of business fixed investment and 15% of equipment investment, economists Jessica Rindels and David Mericle wrote. State of play: The first…
AI:Goldman Sachs economists report that the massive influx of capital into AI infrastructure, projected to reach $600 billion this year, is causing a "crowding-out" effect by displacing other areas of economic activity. This shift manifests as reduced spending on non-AI software and tech services, redirected construction labor and equipment toward high-margin data center projects, and increased corporate borrowing costs due to surges in AI-related debt issuance. While these trends divert resources from traditional manufacturing, construction, and general IT budgets, analysts suggest the actual impact on overall GDP remains relatively modest rather than the catastrophic displacement often suggested by market commentary.Open