The US stock market is showing signs of weakness just a week after reaching record highs, raising concerns about the sustainability of massive artificial intelligence investments. Investors are questioning whether technology companies can generate enough revenue to justify the trillions of dollars being spent on AI development and infrastructure. A prolonged decline could threaten economic growth, particularly when American consumers are already struggling with inflation, high interest rates and rising living costs.
AI investments face growing doubts
The S&P 500 had fallen more than 1% from its recent record by Thursday, October 15, while the technology-heavy Nasdaq had declined approximately 4% from its peak. Concerns intensified after the Financial Times reported slower quarterly revenue growth at Anthropic. Despite generating nearly $17 billion in revenue and reporting profitability, the AI company faces questions about its long-term growth prospects.
Chinese memory chip manufacturers are creating further uncertainty, with increased production potentially threatening Western competitors through oversupply. Meanwhile, investors have started selling bonds financing AI data centres, fearing that future revenues may not cover substantial construction debts. Economist Ed Yardeni subsequently lowered his year-end S&P 500 forecast from 8,400 to 7,900, citing growing caution surrounding AI investments, inflation and interest rates.
Economic growth faces wider risks
Technology-related spending has reportedly accounted for nearly half of US economic growth this year, highlighting the country’s growing dependence on AI investment. Strong technology stocks have supported household wealth and consumer spending, helping sustain economic activity despite financial pressure on lower-income and middle-income Americans. Wells Fargo CEO Charlie Scharf remains optimistic, pointing to AI infrastructure investment, employment and wage growth as important economic strengths.
However, fresh government data showed business inflation reaching its highest level since December 2022, potentially signalling further price increases for consumers. Citi analysts warned that elevated energy prices, higher borrowing costs, sluggish hiring and continued stock market losses could weaken household spending. Sustained declines in AI investment and technology shares would therefore threaten more than investors’ portfolios, potentially undermining one of the US economy’s biggest sources of growth.
