Goldman Sachs and Apollo Economists Warn of AI Investment Slowdown

Goldman Sachs chief economist Jan Hatzius and Apollo chief economist Torsten Slok have raised concerns regarding the sustainability of the AI investment boom that has supported US economic growth over the past year. Hatzius suggests that while AI-related capital expenditure, currently estimated at around $600 billion, may rise further, it is approaching a plateau similar to previous technological waves.

Hatzius noted that AI has only contributed 0.1 percentage points to recent US GDP growth, partly due to significant imports of hardware, which diminishes the domestic economic impact. He emphasized that the transition to a fully realized AI economy will take decades rather than manifesting in the near term.

Slok's analysis indicates a stark divide between major tech firms, dubbed the 'Magnificent 7,' and the rest of the market, the S&P 493. While the Magnificent 7 have seen significant increases in revenue and profit margins, the remaining companies have experienced stagnation. Slok argues that AI investments are increasingly viewed as a cost rather than a growth driver for many businesses.

This situation raises concerns for investors about concentration risk, as the benefits of AI investments are concentrated among a few large companies. The economists suggest that if AI capital expenditure levels off, it could lead to reduced economic growth, highlighting the need for broader corporate America to show improvements in productivity metrics.