AI Investment Slowdown Expected to Drag Down Stock Markets and GDP Growth

U.S. stock markets face potential declines as growth in artificial intelligence investment slows over the coming years before contracting in 2028, according to economic forecasts released Friday. The projected reduction in capital expenditure is expected to weigh on broader gross domestic product growth.

Major technology firms are expected to spend $800 billion on AI infrastructure this year—double the amount from a year ago—with annual investments projected to top $1 trillion by 2027. However, estimates indicate that AI-related revenues earned from external customers would need to expand tenfold by 2030 to sustain those spending levels, raising concerns over future capital outlays.

Capital spending on AI is projected to rise at a more moderate pace next year before falling by approximately 10% in 2028. Analysts estimate that a 10% drop in capital spending could reduce U.S. GDP growth by about 0.1 percentage point, while tech-reliant Asian economies could experience larger disruptions, with real GDP growth declining by up to 3 percentage points in Taiwan and 1 percentage point in South Korea.

Equity markets are expected to price in the spending slowdown well before 2028. Projections show the S&P 500 falling 12% below current levels by the end of 2027, representing a 17% decline from its early-October peak. Tech-heavy indices could face steeper losses, compounded by potential tightening in financial conditions and higher energy costs.

Despite the anticipated pullbacks in spending and equity valuations, economic models suggest AI adoption will continue to enhance overall productivity by about 1% annually over several years. Infrastructure built during the initial boom is expected to support ongoing integration, averting a major economic downturn even as capital spending normalizes to sustainable levels.