Jefferies warns that the AI capital expenditure cycle may be approaching an inflection point, with its contribution to U.S. GDP growth already standing at 67%.

Jefferies strategist Christopher Wood’s latest report states that over the four quarters ending in Q3 2026, U.S. AI-related real capital expenditure contributed 1.39 percentage points to year-over-year GDP growth, accounting for 67% of the country’s total 2.1% economic expansion. Meanwhile, investment in information processing equipment and software rose to 5.35% of nominal GDP, surpassing the 4.46% recorded during the 2000 dot-com bubble to hit an all-time high. Jefferies notes that widening credit spreads, ongoing declines in semiconductor stocks, and deteriorating free cash flow among hyperscale cloud service providers all signal the AI capital expenditure cycle may be nearing a turning point. Microsoft, Amazon, Alphabet, and Meta are projected to combine for roughly $1.04 trillion in capital expenditure this year, but Amazon and Alphabet’s free cash flow have fallen to -$35 billion and -$90 billion respectively. The report also warns that the AI ecosystem has built a $2.5 trillion backlog of contracts and a revolving financing system, with data center financing increasingly reliant on private credit and off-balance-sheet structures. A downward revision to AI investment expectations could trigger a chain reaction of tighter financing and shrinking capital expenditure. Jefferies argues that a sharp contraction in AI investment would deliver a significant shock to U.S. economic growth and may force the Federal Reserve to pivot to loose monetary policy. However, with the U.S. fiscal deficit already at 6.2% of GDP, U.S. Treasuries may not function as traditional safe-haven assets in that scenario. The report advises investors to properly diversify their asset allocations beyond AI, focusing on sectors such as gold and biotech.