Most US Growth Now Rides on AI—And Economists Suspect a Bubble

Core Insights - The U.S. economy is heavily reliant on AI investments, which accounted for nearly 92% of GDP growth in the first half of 2025, raising concerns about market valuations and potential risks [1][2] - The Bank of England has indicated that equity market valuations for AI companies appear stretched, particularly in the technology sector, which could lead to vulnerabilities if AI expectations diminish [2][4] - Elon Musk's xAI is raising $20 billion for a data center, highlighting the significant financial activity in the AI sector, with Nvidia also investing $2 billion in the deal [2][3] Company Performance - AI companies, particularly the "Magnificent Seven," are demonstrating strong profitability, with Nvidia's stock increasing by 1,700% over the last two years and OpenAI targeting $12.7 billion in revenue for 2025 [5][6] - The infrastructure supporting AI is substantial, with nearly 90% of developers currently using AI and a doubling of generative AI adoption within a year [6] Market Sentiment - There is a debate on whether the current AI boom represents a transformative revolution or a potential repeat of the dot-com crash, with differing opinions among analysts and economists [4] - Ruchir Sharma warns that the U.S. economy has become overly dependent on AI, suggesting that if AI does not deliver, it could jeopardize economic stability [4]