Capital Economics: Reversal of AI investment boom unlikely to trigger US recession

November 10 — Neil Shearing, Chief Economist at Capital Economics Group, wrote that even if the AI investment boom reverses, it is unlikely on its own to push the US or other G7 economies into recession.

Shearing noted that the Philadelphia Semiconductor Index has fallen about 35% since peaking in June this year, and the share prices of the five major hyperscale cloud service providers have fallen an average of about 10% since early October. Over the past year, AI-related investment and the wealth effect from rising stock markets together accounted for roughly one-quarter to one-third of US GDP growth. On the current trajectory, the AI-related investment stock could exceed $5 trillion by the end of this decade; under relatively conservative return assumptions, related companies would still need to generate an additional $1.7 trillion to $1.9 trillion in annual revenue to match this scale, while current AI-related revenue is about $150 billion per year.

If investment turns, it could lower US GDP growth by about 0.3 percentage points. The firm believes that current banking sector leverage has not created systemic financial risks similar to the housing bubble period, and that most AI investment corresponds to imported goods, so the impact on US domestic manufacturing and employment is expected to be more limited, with the effects more likely to show up in supplier economies such as Taiwan and South Korea. Capital Economics has already incorporated the drag on US growth in 2027 from an AI investment pullback and stock market decline into its forecasts, and believes that if this judgment holds, stock market declines outside the technology sector should be limited.