AI Is Distorting Practically Everything About the Economy
It makes growth look better and the job market look worse. Maybe an AI investment bust wouldn’t hurt so much after all.
By Greg Ip, The Wall Street Journal, May 7, 2026
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AI is more like a hurricane-strength weather system making itself felt across the entire economy. It is distorting the stock market, profits, the speed and composition of economic growth, trade and even our moods—especially about the job market…
The boom itself is in uncharted territory. Morgan Stanley now sees capital spending by the five largest AI “hyperscalers” topping $800 billion this year and $1.1 trillion next year. At 3.3% of gross domestic product, next year’s figure would exceed projected spending on national defense…
Beneath the surface, though, are two economies: AI and everything else.
Personal consumption, the biggest component of GDP, grew a relatively muted 1.6%. Investment fell in housing, business structures such as office buildings and factories, and transportation equipment like trucks and aircraft. Meanwhile, investment soared 43% in tech equipment, 23% in software and 22% in data-center buildings.
My back-of-the-envelope estimate is that the AI economy grew 31%, the non-AI economy just 0.1%…
…gross computer spending contributed 1.7 percentage points of the first quarter’s 2% growth. Net out imports, and that drops to just 0.4 point…
Taiwan’s trade surplus has reached an almost unthinkable 24% of GDP. Kospi, the South Korean stock index—home to semiconductor giants Samsung Electronics and SK Hynix—is up 78% this year…
Weighting all 500 companies equally, the S&P 500 index actually fell slightly… [end quote]
The AI hurricane is dominating the stock market. But the underlying economy is weak. And the scale of the spending on AI is breathtaking. It’s like a privately-funded Manhattan Project. Like the build-out for the internet in 1999, the money borrowed to fund the AI build-out is gigantic. (Although some of the largest AI companies are self-funding out of current profits.)
If the end-users don’t spend enough to pay for the build-out the lenders could be stiffed as they were in the 2000 dot-com bust. And drag the rest of the economy and stock market along with them.
Wendy