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In the previous article (Increase in corporate earnings in the US due to the AI boom), we discussed how US corporate profits are rising due to the AI boom. The US companies, mostly the top companies, are expected to earn more due to investing in AI advancement. Investors are investing their money in those companies, and they are confident about their growth. The companies have also shown progress in growth due to AI advancement.
Big companies like Nvidia, Meta, Alphabet, and Broadcom are expected to grow more in this quarter of the year. Last year’s growth was also at a high level, but experts have reported that they are expecting record growth in these companies due to AI advancement.
The demand for AI services is increasing all over the globe. The big US companies are investing in advancing AI services. They are investing a lot of money in AI advancement, computer chips, and technological advancement. This change is due to market demand for these services. The investors are very confident about the growth of these companies, and they are investing a large amount of money in these companies.
However, this growth of the companies has a downward effect as well. As the companies are rising, there are only a few big companies such as Nvidia, Meta, Alphabet, and Broadcom that can invest in AI advancement. This affects small companies; this also consumes a lot of energy, and this makes the US stock market much more vulnerable.
In this article, we will discuss the downside of the growth in AI advancement and its effects on the US economy.
The first problem created by high interest rates
The growth of US corporations came at a time when borrowing costs are on the rise. The long-term government bond yield has increased sharply during this time. This caused an increase in borrowing costs all over the United States. This simply means that when you have high interest rates, you have to pay back more money if you borrow. This means it is now expensive for companies and households to borrow money.
This will hurt sectors such as real estate, utilities, and financial services. Small companies also face high pressure because they mostly depend on borrowing money for their financial services. Consumers also face problems regarding the high cost of mortgages, loans, and other forms of borrowing.
Despite all these effects, the stock market is still stable. Investors believe that investing in strong corporate benefits and profits. They are highly confident about their investment, especially in the technological companies. They believe these benefits can offset the small damages caused by the high borrowing costs.
If this continues, it will still produce better results in terms of stock market stability. But the productivity gain will be more dependent on the gains from AI technology. In simple terms, businesses will need AI to grow rather than spending money to grow. This will make the market more vulnerable.
Another challenge of energy prices:
High energy prices are also one of the factors affecting companies as well as consumers. Oil prices in September rose due to the disruption in the Strait of Hormuz. Strait of Hormuz is a strategic location in the Middle East, from where most of the world’s oil is transported. Now, during the tension between the US and Iran, Iran closed the Strait of Hormuz, and this caused a major disruption in oil prices all over the world.
This caused a rise in oil prices in the US as well. It is bad news for consumers because the increase in oil prices could raise the prices of everyday products. Businesses face high costs when oil prices rise
But this also helps the energy companies. This affects these companies positively, and due to the rise in energy prices, they get more revenue. Experts have predicted a 100% growth in earnings of these companies compared to last year. This creates an unusual effect because some companies earn more, and others will go down because of the same thing.
What is next for the US economy?
The next period of the US economy will depend on how these companies perform in the future. Experts have said there will be an increase in the growth of companies that are investing in AI advancement. But on the other hand, there is still an increase in borrowing costs and high energy prices in the US.
We have to see if the US stock market will be stable due to the growth of these big AI advancement companies, or if the high energy prices and high borrowing costs will affect the market.
Investors are fully aware of the risk, but they also have full confidence in the companies and their investment in AI advancement. This simply means they are willing to take the risk, but it can turn the tables if the demand for AI advances goes down. We have to look at what happens in the future to know more. Till then, stay connected to know more.
You can read our other news article as well
Increase in corporate earnings in the US due to the AI boom
Why the USA and China Are in a Long Struggle, Not a Short Fight
