Just a week after hitting new all-time highs, US stocks are showing signs of strain as investors begin to worry about the returns on the trillions of dollars that have been invested in AI. For American consumers, it could mean a more unstable economy in the future. After the close of trading on Thursday, the S&P 500 was 1% below its record from the previous week, while the tech-heavy Nasdaq had fallen more than 3% below its peak last week. Driving the declines: Anthropic’s quarterly revenue growth has slowed, the Financial Times reported Wednesday. The AI giant is expected to be worth more than $1 trillion when it goes public, and at almost $17 billion, its revenue is still huge and the company says it is profitable. There is also growing concern about whether China-based memory technology companies could undercut, or even surpass, their Western rivals. And while the construction of AI data centers has created a global shortage of processing chips, there are fears 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 will not be enough to cover the huge sums that have been borrowed to finance the construction of the centers. On Thursday, economist Ed Yardeni, a widely respected market commentator, lowered his year-end target for the S&P 500 to 7,900, from 8,400, over what he said was growing investor caution about artificial intelligence trading and lingering doubts about inflation and higher interest rates. The S&P 500 currently stands at around 7,600 points. Most Americans do not directly own technology stocks, much less work in artificial intelligence, which a growing number of studies show may have begun to limit job opportunities. Still, the development of AI has been a huge part of what is driving the economy, at least on paper. Nearly half of all growth in the U.S. economy this year is attributable to technology-related spending. Those investments have also boosted the stock market, even as a growing group of other companies have seen sharp declines in their stock prices. Technology-driven gains, in turn, have created a wealth effect that has helped drive stable spending by American consumers and, by extension, the labor market. The result has been strong economic growth, even as lower-income and even middle-income households have continued to struggle with persistent inflation and declining incomes. “While higher interest rates, higher oil prices and persistent inflation create risks to the economy, strong positive forces such as investment in artificial intelligence infrastructure, high employment levels and steady wage growth continue to offset the risks,” Wells Fargo CEO Charlie Scharf said this week. But other economists say consumers are already dealing with a number of stressors that may weaken their position. The Bureau of Labor Statistics reported Thursday that inflation among businesses hit its highest rate since December 2022, price growth that could eventually trickle down to consumers. If technology spending (and stocks) show any signs of sustained decline, broader U.S. economic growth would likely be at risk. “Higher interest rates, elevated energy prices, slow job growth and the stock sell-off (if it continues) are downside risks to consumer spending,” Citi analysts wrote in a note Thursday.
