By Lucretia Hughes Klucken
HARTWELL, Ga. — Artificial intelligence has become one of the most powerful forces driving investment, technology and the American stock market, but a new analysis from Fitch Ratings is raising a serious question: What happens to the U.S. economy if the AI boom suddenly turns into a bust?
Fitch Ratings warned that a severe decline in AI-related stocks could push the United States into recession and send economic weakness across the globe, underscoring just how closely the American economy and financial markets have become tied to the artificial intelligence investment boom.
The warning does not mean Fitch is forecasting an AI crash. The ratings agency constructed a downside scenario to examine what could happen if investors sharply reassessed whether the hundreds of billions of dollars being poured into artificial intelligence will ultimately produce the returns companies and markets expect.
In Fitch’s scenario, AI-related stock prices fall 35% over six months. Such a correction could lead to a U.S. recession, with year-over-year gross domestic product falling as much as 1.5% in the second quarter of 2027 compared with where it otherwise would have been.
Private capital spending could fall by more than 6%, while U.S. investment could contract by approximately 4.8% as companies reconsider or postpone artificial intelligence spending plans.
That matters because AI is no longer simply another corner of the technology industry.
It has become an increasingly important part of the American economy.
Information technology fixed investment accounted for roughly 5% of U.S. GDP during the second quarter, according to Fitch, up about one percentage point from before the COVID-19 pandemic.
Earlier this year, Fitch estimated booming information technology investment directly added approximately 1.4 percentage points to first-quarter U.S. GDP growth.
That means some of the same investment helping support economic growth could become a vulnerability if expectations surrounding artificial intelligence change dramatically.
The concern goes beyond technology companies.
American households held approximately $55.1 trillion in stocks and mutual fund shares during the first quarter, representing more than 30% of household wealth, according to Federal Reserve data cited by Fitch.
When stock prices rise, Americans who own stocks through retirement accounts, mutual funds and other investments may feel wealthier and become more willing to spend. Economists call that the wealth effect.
But it can work in reverse.
A major stock-market decline can reduce household wealth, weaken consumer confidence and cause families to pull back on spending. Lower consumer spending can then affect businesses, employment and economic growth.
The concentration of the market adds another concern.
Fitch said the total value of the U.S. stock market has reached approximately 200% of GDP, a post-World War II record.
Artificial intelligence has also fueled enormous spending on data centers, computer chips, energy infrastructure and other technology. Major companies have committed extraordinary amounts of capital to building the infrastructure they believe will be required for the AI economy.
That spending creates jobs and economic activity today.
The unanswered question is whether future AI revenues will justify the investment.
If companies discover that artificial intelligence does not generate profits quickly enough to support current valuations and spending levels, investors could begin reassessing the value of AI-related companies.
That is the risk Fitch is examining.
The consequences would not necessarily stop at America’s borders.
Under Fitch’s severe scenario, world GDP growth could fall below 1% in 2027, a level the agency described as consistent with global stagnation or recession on a per-capita basis.
Stock markets in countries including China, Japan and the United Kingdom could also fall approximately 15% under the scenario.
Canada and Mexico could face particularly significant economic effects because of their close trade relationships with the United States.
The warning comes as other financial institutions raise similar questions about the extraordinary amount of money flowing into artificial intelligence.
The Bank for International Settlements said Thursday that the rapid expansion of AI is creating new financial-stability risks even as the technology offers potentially significant productivity benefits.
The BIS estimates the world’s five largest technology companies will invest more than $1 trillion in artificial intelligence during 2025 and 2026 combined, while global AI investment could reach approximately $4 trillion by 2030.
None of this means artificial intelligence is destined to fail.
AI could transform medicine, manufacturing, transportation, communications, education and countless other industries. Businesses are already using the technology to automate tasks, analyze enormous amounts of information and increase productivity.
Fitch itself continues to recognize the economic benefits of the technology boom. Its current economic outlook says stronger-than-expected momentum in information technology investment has helped support U.S. growth even as inflation and other pressures weigh on consumers.
But technological revolutions and investment bubbles can exist at the same time.
The internet changed the world, but that did not prevent the dot-com bubble from bursting more than two decades ago.
Railroads transformed America, but railroad investment also produced periods of speculation and financial collapse.
Artificial intelligence may ultimately prove every bit as transformative as its supporters believe.
The question for investors, businesses and policymakers is whether today’s valuations are based on tomorrow’s real economic productivity or expectations that have moved faster than reality.
America should embrace innovation.
But innovation does not eliminate economic risk.
When trillions of dollars in investment, household wealth, corporate borrowing and economic growth become increasingly connected to one technological revolution, asking what happens if expectations change is not anti-technology.
It is common sense.
AI may very well change the world.
But America should make sure its economy is strong enough that the future does not depend on one technology boom continuing forever.
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