!Illustration shows AI (Artificial Intelligence) letters and robot hand
AI (Artificial Intelligence) letters and robot hand are placed on computer motherboard in this illustration created on June 23, 2023. REUTERS/Dado Ruvic/Illustration/File Photo LONDON, Dec 4 (Reuters) - Ever since ChatGPT burst onto the scene three years ago, investors have either jumped on the artificial intelligence bandwagon or warned endlessly of yet another tech bubble.
The bulls are convinced that "this time is different" because AI is a macro transition rather than a micro valuation story, while the naysayers point to the risk of overheating.
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Trillions of dollars of AI investment spending earmarked over the next five years hinge on a belief that a grand technological transformation of the entire U.S. - and likely global - economy is underway.
Doubters are reasonably skeptical about faith alone and are wary the returns will not justify that blistering spend - given lofty end-usage estimates, already sky-high valuations, creeping leverage and the inevitable minefield of winners and losers.
One way to take a view is to zoom the lens out as far as possible and see what it might mean for economic growth relative to history.
Strategists at the world's biggest asset manager BlackRock - still big believers in the AI story - did that as part of their annual outlook this week, which showed just how difficult it would be for even this sort of tech metamorphosis to knock the U.S. off the steady course it has mapped over a century and a half.
Difficult, they reckon, but not impossible.
"The U.S. sits at the global economic frontier," the report from the BlackRock Investment Institute blared.
"But all major innovations of the last 150 years – including steam, electricity and the digital revolution – were not enough for it to break out of its 2% growth trend. Doing so is a tall order."
The simple reason they think that a growth breakout is conceivable this time is they see AI as not only an innovation in itself, but one with "the potential to innovate the process of innovation".
By that they mean AI could begin to generate, test and improve new concepts of its own - accelerating and driving scientific breakthroughs in materials, medicines and tech.
BlackRock's chart maps U.S. GDP-per-capita growth stretching back to 1870. Aside from the big swings around World War Two, the two notable periods of above-trend growth were in the late 19th century and the 1990s. But it never strays far from the 2% trendline.
!BlackRock chart on US trend growth over 150 years
BlackRock chart on US trend growth over 150 years
Maybe this time it's different.
What's true in markets at least is that the AI story has once again this year masked pretty much all other cyclical or policy-driven concerns.
!The charr depicts the returns generated by the stocks in
The charr depicts the returns generated by the stocks in "AI Loser" sectors, i.e. whose businesses are threatened by AI, in 2025 YTD.
RE-LEVERAGE AND OVERHEAT
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But while we wait for AI's long promise to unfold, the immediate economic horizon is likely still constrained by that 2% trendline - to the extent that bottlenecks in the labor market or existing supply chains or construction capacity still exist.
!US real GDP growth tracking 3.9%, with inflation at 3%
US real GDP growth tracking 3.9%, with inflation at 3%
With GDP growth already outstripping expectations since the early-year tariff shock, and the capex boom accelerating while inflation is still well above the 2% target, many forecasters now fear next year may see the economy potentially overheating.
"The scene is set for rebuilding demand in 2026, as governments stimulate, central bank cuts feed through and the private sector re-leverages," said TS Lombard Chief Economist Freya Beamish in her annual outlook. "The picture looks more inflationary in the U.S."
That points back to the prospects of ongoing Federal Reserve monetary easing into the middle of all that, along with heightened anxiety about greater political influence on the central bank to floor rates once current Fed Chair Jerome Powell departs in May.
Unlike many previous years, further Fed easing may now be considered as much of an economic risk as a boon - great in the short term for risk assets like equities, but storing up problems down the road.
In another long sweep of history, Deutsche Bank strategist Henry Allen this week looked at the precedent of central banks cutting interest rates outside recessions - and where no recession was on the horizon.
The Fed's 150 basis points of rate cuts since September 2024 have been the fastest outside a recession since the 1980s, he pointed out.
"Faster cuts have often led to overheating, especially if they're interacting with loose fiscal policy," Allen wrote. "Perhaps the most notable example of this is the U.S. in the late-1960s, where rate cuts led to a fresh bout of inflation, and ultimately recession as the Fed then tightened again."
!Deutsche Bank charts on US and European rates cuts outside of recessions over the past 70 years
Deutsche Bank charts on US and European rates cuts outside of recessions over the past 70 years
Even if the great leap forward in productivity and potential does come to free us all from the shackles of dogged inflation - it's unlikely to arrive as soon as next year.
The opinions expressed here are those of the author, a columnist for Reuters
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by Mike Dolan; Editing by Marguerita Choy
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Mike Dolan is Reuters Editor-at-Large for Finance & Markets and a regular columnist. He has worked as a correspondent, editor and columnist at Reuters for the past 30 years - specializing in global economics and policy and financial markets across G7 and emerging economies. Mike is based in London but has also worked in Washington DC and in Sarajevo and has covered news events from dozens of cities across the world. A graduate in economics and politics from Trinity College Dublin, Mike previously worked with Bloomberg and Euromoney and received Reuters awards for his work during the financial crisis in 2007/2008 and on Frontier Markets in 2010.
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