Economy·The AI boom is unsustainable unless spending goes ‘parabolic,’ Deutsche Bank warns: ‘This is highly unly’By Jim EdwardsBy Jim EdwardsExecutive Editor, Global NewsJim EdwardsExecutive Editor, Global NewsJim Edwards is the executive editor for global news at Fortune.
He was previously the editor-in-chief of Insider's news division and the founding editor of Insider UK. His investigative journalism has changed the law in two U.S. federal districts and two states.
The U.S. Supreme Court cited his work on the death penalty in the concurrence to Baze v. Rees, the ruling on whether lethal injection is cruel or unusual.
He also won the Neal award for an investigation of bribes and kickbacks on Madison Avenue.SEE FULL BIO Photo by Fu Ding/Beijing Youth Daily/VCG via Getty ImagesThe current AI boom is not sustainable, a Deutsche Bank re note said this morning, because spending won’t “remain parabolic.” AI capex is now so massive it is keeping the U.S.
out of recession, the bank said. Separately, Bain & Co. estimate there will be an $800 billion shortfall in the revenues needed to fund the demand for AI computing power.
half the S&P 500’s gains this year have been driven by stocks.
On the heels of Nvidia’s $100 billion investment in OpenAI, two Wall Street re notes out today suggest that the current boom in AI may be unsustainable.
“AI machines—in quite a literal sense—appear to be saving the US economy right now,” George Saravelos of Deutsche Bank told clients in a re note. “In the absence of -related spending, the U.S.
would be close to, or in, recession this year.” Separately, Bain & Co.’s annual global nology report says that AI won’t be able to generate enough revenue to sustain the computing power it needs to build.
“Two trillion dollars in annual revenue is what’s needed to fund computing power needed to meet anticipated AI demand by 2030.
However, even with AI-related savings, the world is still $800 billion short to keep pace with demand,” the report says.
The stock market has been highly driven this year by the Magnificent 7 stocks, based on their spending on AI and the revenues they generate from AI capital expenditure from other companies.
There isn’t consensus on Wall Street on this, however. Goldman Sachs took a more bullish view this morning.
“We expect ductivity gains from artificial intelligence (AI) to boost GDP significantly, by 0.4% through the next few years and 1½% cumulatively as adoption rises over the long run.
Once it is widely adopted, AI is ly to allow workers and firms to duce more output for a given set of inputs, which will raise [total factor ductivity] growth,” Manuel Abecasis and his colleagues told clients in a note seen by Fortune.
Estimates vary as to how much is being spent by AI hyperscalers on the data centers and the massive power infrastructure they need.
Goldman Sachs estimated that AI capex totaled $368 billion through August of this year. Whatever the number is, it is so massive that it’s boosting GDP, Deutsche’s Saravelos said.
“It may not be an exaggeration to write that NVIDIA – the key supplier of capital goods for the AI investment cycle – is currently carrying the weight of US economic growth.
The bad news is that in order for the cycle to continue contributing to GDP growth, capital investment needs to remain parabolic.
This is highly unly.” He also noted that “growth is not coming from AI itself but from building the factories to generate AI capacity.” AI spending is also distorting the stock market, Deutsche Bank’s Jim Reid argued in a separate note published this morning.
“The S&P 500 is now up +13.81% so far this year, whereas the equal-weighted version is only up +7.65%. Or in other words, it’s been the Magnificent 7 driving the gains,” his team said.
Apollo Management’s Torsten Sløk agrees: “The upward consensus revision to 2026 earnings for the S&P 500 since Liberation Day comes entirely from the Magnificent 7, see chart below.
The outlook for the rest of the economy is much more bearish: Earnings expectations for the S&P 493 have remained suppressed and are not moving higher.” “There is an extreme degree of concentration in the S&P 500, and equity investors are dramatically overexposed to AI,” he warned.
Here’s snapshot of the ahead of the opening bell in New York this morning: S&P 500 futures were flat this morning.
The index closed up 0.44% in its last session, hitting a new all-time high at 6,693.75. STOXX Europe 600 was up 0.48% in early trading. The U.K.’s FTSE 100 up 0.35% in early trading.
Japan’s Nikkei 225 was up 0.99%. China’s CSI 300 was flat. The South Korea KOSPI was up 0.51%. India’s Nifty 50 was flat before the end of the session.
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