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BUSINESS & TRADE SEPTEMBER 04, 2026 | The Indian Eye 38

How America’s AI boom is powerful but

the economy beneath faces challenges

US is leading the global artificial intelligence revolution, but slowing growth and

persistent inflation are raising questions about the AI-led expansion

OUR BUREAU
New York, NY

he artificial intelligence boom
has become one of the biggest
Tsources of optimism for the US
economy, driving enormous invest-
ment in semiconductors, data centers,
cloud computing and digital infra-
structure while pushing technology
valuations and corporate profits high-
er. Yet the latest economic data sug-
gest that the extraordinary AI invest-
ment cycle is not translating evenly
across the American economy, raising
the possibility that the country may be
entering an increasingly unequal, two-
speed recovery.
US real GDP growth slowed to
an annualized 1.5 per cent in the sec-
ond quarter of 2026, from 2.1 per cent
in the first quarter, according to the
Bureau of Economic Analysis. The Much of the optimism surrounding the American economy therefore comes from the strength of corporate America and, increasingly, from
BEA said the deceleration reflected technology-led investment (File photo: White House)
“a downturn in government spending
and decelerations in investment and real GDP growth excluding technol- sets returning to the region. The cur- become more common. The report
exports.” At the same time, inflation ogy capex is particularly weak”. The rent US current-account deficit and identifies production optimization,
pressures remained elevated, with the implication is that artificial intelli- dollar strength have been supported drilling, reservoir management and
PCE price index rising 5.3 per cent gence has become a powerful invest- partly by this recycling of Asian sav- predictive maintenance among the ar-
and the core PCE index increasing 3.6 ment engine without yet producing ings into American financial markets. eas with the greatest potential.
per cent. The combination is uncom- comparable spillovers across tradi- If the AI boom weakens, Asian tech- But McKinsey also cautions that
fortable: growth is slowing, but infla- tional sectors. Retail activity in the US, nology exports could also slow, reduc- AI is a “concentration play”, with the
tion has not fallen sufficiently to give Europe and China remains subdued, ing the flow of capital back into the top 10 use cases accounting for nearly
policymakers an easy path towards while real estate activity across major United States. half of the identified value. The lesson
monetary easing. economies is still close to post-global That could create an unusual for the wider economy is that tech-
There is, however, an important financial crisis lows. problem for Washington. A weak- nological adoption will not automati-
distinction within these numbers. Un- This creates a two-speed global er AI cycle could result in a weaker cally benefit every company or sector
derlying private domestic demand re- economy in which chip-producing dollar and continued pressure on equally. America therefore faces a
mains relatively strong, with real final countries such as South Korea, Tai- US Treasury yields even as econom- paradox. It has arguably never been
sales to private domestic purchasers wan and China benefit disproportion- ic growth slows. Normally, slower better positioned to lead a technolog-
increasing 4.2 per cent in the second ately from the AI investment cycle, growth would be expected to push in- ical revolution, yet the wider economy
quarter. Corporate profits also rose while traditional sectors remain much terest rates and bond yields lower. But has not fully demonstrated that it can
sharply, increasing by $400.9 billion weaker. The United States is at the if foreign demand for US assets weak- convert that technological leadership
during the quarter compared with centre of this process because its tech- ens at the same time, Treasury yields into broad-based growth.
just $74.4 billion in the first quarter. nology companies dominate many could remain elevated, complicating The next stage of the AI story will
Much of the optimism surrounding of the most valuable parts of the AI the Federal Reserve’s response to an consequently be more important than
the American economy therefore ecosystem, but that leadership also economic downturn. the first. Building data centers, buying
comes from the strength of corporate creates a potential vulnerability if in- The potential gains are neverthe- chips and investing billions in AI can
America and, increasingly, from tech- vestment expectations begin to outrun less enormous. McKinsey estimates generate spectacular financial num-
nology-led investment. economic returns. that AI could unlock around $65 bil- bers, but the real measure of success
The concern is whether that Nuvama warns that a slowdown lion in annual recurring value in the will be whether the technology raises
strength can spread to the rest of the in global AI capital expenditure could global upstream oil and gas sector us- productivity across the economy, sup-
economy. trigger “a reversal of capital flows”, ing technologies available today, with ports wages and consumption, creates
Nuvama’s analysis is particularly with Asian savings that have been re- a “credible path to $230 billion” as AI new industries and strengthens Amer-
relevant because it argues that “US cycled into US equities and other as- matures and autonomous operations ica’s underlying growth potential.

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