U.S. economy leans on AI spending as recession risks persist, Rosenberg says

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US economy leans on AI spending

Highlights

Rosenberg estimates 50% of all U.S. corporate investment now targets AI-related items, with AI spending rising about 18% annually in real terms.
He warns that AI capital flows are draining investment from 'old economy' sectors, worsening U.S. housing shortages and reducing affordability.
U.S. economy grew at an annualized 1.5% in Q2 versus 2.1% in Q1, lost 23,000 jobs in July, and rising CDS spreads signal building credit market stress.

AI investment concentration and economic backdrop

As reported by Business Insider, Rosenberg says the AI boom is absorbing investor capital and helping keep the U.S. out of recession, even as it begins to show signs of strain.

The Rosenberg Research president says AI is "sapping the momentum out of the rest of business capital spending." He estimates that 50% of all corporate investment is going toward AI-related items, with that spending growing about 18% annually in real terms, while capital spending in the "old economy" is declining.

He makes the remarks while responding to Richard Bernstein, global head of macro at Janus Henderson Investors, who says capital is flowing into data center construction instead of residential housing. Bernstein compares the trend to the way the energy sector was starved for capital during the dot-com boom, adding that the shift is worsening housing shortages and affordability pressures.

Rosenberg says the current economic backdrop differs sharply from the internet bubble period. He says consumers were broadly strong at that time, while today's economy fits a more uneven, K-shaped pattern.

Credit market warnings and sector pressure

Rosenberg says that without AI-related spending, the U.S. economy would probably already be in recession. He points to contraction in housing and weakness in auto sales and non-tech manufacturing as evidence that underlying activity remains fragile.

Recent data cited in the discussion shows the U.S. economy grows at an annualized 1.5% in the second quarter of this year, down from 2.1% in the first quarter. The economy also unexpectedly loses 23,000 jobs in July, compared with Wall Street expectations for a gain of 85,000.

He says debt investors are likely to identify the next turning point in the AI trade before equity investors do, much as they did ahead of the 2008 financial crisis. Rosenberg points to rising financing costs and widening spreads on credit default swaps, or CDS, as early warning signs that stress is building around the sector.

Nvidia’s push to mobilize more than $500bn for AI infrastructure financing showed how the AI build-out is increasingly being funded through large, dedicated capital pools backed by major private capital firms. Our earlier coverage noted that the effort would support spending on data centers, power capacity and AI cloud projects, while also raising questions about concentrated sector risk as financing structures expand alongside demand.

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