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…
What is the estimated impact of AI investment on non-AI investment levels according to the Goldman Sachs analysis?
The impact has been limited so far, potentially reducing non-AI investment by a modest $10 billion.
Q&A ID 1425da09-7d62-4055-a577-b983ee9e2981
According to Goldman Sachs economists, are the claims that AI is significantly contributing to U.S. GDP growth while simultaneously crowding out massive amounts of other activity accurate?
No, economists Jessica Rindels and David Mericle suggest that both claims—that AI is making a very large contribution to U.S. GDP growth and that it is crowding out a great deal of other activity—are exaggerated.
Q&A ID 820f812e-ed64-4a7a-b7f5-dd5d3ac66dc0
What impact has the surge in AI-related debt issuance had on borrowing costs for the rest of the corporate sector?
The hyperscalers' high demand for capital has caused a surge in AI-related debt issuance, which has raised corporate borrowing costs for the rest of the corporate sector by only 0.05 percentage point so far.
Q&A ID a7e26b35-f2c2-4c66-9436-3dd1874df8af
How is the AI boom causing a "crowding-out" effect in the technology and construction sectors?
The crowding-out effect occurs as resources are displaced in two main ways: first, through the displacement of other tech spending at hyperscalers and companies paying for AI services (where IT budgets may cut other software spending to afford AI tokens); and second, through the data center boom, where construction labor and equipment are diverted to AI buildouts because gross margins on data center construction are more than twice as high as margins on non-tech projects.
Q&A ID 33ea69af-204f-4ce1-a55c-788c21b0c823
What are the projected figures for AI investment this year according to Goldman Sachs economists Jessica Rindels and David Mericle?
AI investment is expected to be approximately $600 billion this year, which represents about 2% of GDP, 10% of business fixed investment, and 15% of equipment investment.
Q&A ID 66eb0ef7-eb6d-4f49-abf7-a2112417e2a4