Capital Economics: Reversal of AI investment boom unlikely to trigger US economic recession

Capital Economics Group chief economist Neil Shearing wrote that even if the AI investment boom reverses, it is unlikely on its own to push the U.S. or other G7 economies into recession. Shearing pointed out that the Philadelphia Semiconductor Index has fallen roughly 35% since hitting a peak in June this year, while shares of the five largest hyperscale cloud service providers have dropped an average of around 10% since early October. Over the past year, AI-related investment and the wealth effect from stock market gains combined to account for roughly a quarter to a third of U.S. GDP growth. At the current trajectory, the stock of AI-related investment could exceed $5 trillion by the end of this decade; under relatively conservative return assumptions, related firms still need to generate an additional $1.7 trillion to $1.9 trillion in annual revenue to match this scale, while current annual AI-related revenue is approximately $150 billion. A shift in investment could lower U.S. GDP growth by roughly 0.3 percentage points. The firm argues that current banking leverage has not created systemic financial risks comparable to those during the housing bubble era, and most AI investment corresponds to imported goods, so its impact on U.S. domestic manufacturing and employment is expected to be more limited, with effects likely concentrated in supply-side economies such as Taiwan and South Korea. Capital Economics has already factored the drag from AI investment pullbacks and stock market declines into its 2027 U.S. growth forecast, and if this assessment holds, stock market losses outside the tech sector should be limited.