How the AI boom shades the American economy, and what it keeps out of sight

Estimates of what the AI build-out adds to American growth run from a tenth of a point to a third of the total. Its surer effect runs through the stock market, which keeps the richest households spending while everyone else stands in the sun. Beneath it lies a web of deals in which Nvidia, the boom’s indispensable supplier, helped finance the companies that buy its chips. This week Nvidia lost the man who made them.

By Michael Cummins, Editor, November 14, 2026

“Every great crisis reveals the excessive speculations of many houses which no one before suspected.”Walter Bagehot, Lombard Street (1873)

§ IDinner at Ogontz

Three days before the crash, America’s most celebrated banker had the President to dinner. Ulysses S. Grant was Jay Cooke’s guest at Ogontz, Cooke’s estate outside Philadelphia, on the evening of September 15, 1873. Cooke had made his name selling the Union’s war bonds to ordinary Americans. Now he was selling bonds for the Northern Pacific, a second railroad to the Pacific, and the buyers had dried up. To keep the line building, Cooke’s bank had been advancing it money of its own.

On September 18, Jay Cooke & Company suspended. The next morning’s New-York Tribune named the cause: the firm’s “advances to the Northern Pacific Railroad.” On September 20 the New York Stock Exchange closed for the first time in its history, and it stayed closed for ten days. The depression that followed lasted more than five years.

The story has a modern echo. In October the strategist Jim Bianco, using a JPMorgan list of 41 AI stocks, found that bets on artificial intelligence make up 49 percent of the S&P 500. The last time a single theme was more than half the index, he observed, it was the railroads.

None of this predicts a crash. The railroads were the great infrastructure of their age. But Cooke’s story is a reminder that one building project can carry an economy for years, and that how it is paid for matters as much as what is built.

Scott Galloway, the NYU Stern professor who writes the newsletter No Mercy / No Malice, has used “cloud cover” for a year to mean what a rising stock market lets a government get away with. This week he compressed it into a single sentence. “AI is cloud cover for the Trump economy,” he wrote, arguing that the AI rally was keeping markets from registering what tariffs and inflation had cost. What lies under the cloud is easy to find: the weakest year of hiring outside a recession since 2003, tariffs, and an oil shock from the war in the Middle East. Look up from that ground, and a cloud does four things. It rains somewhere else, it gives shade, it traps heat and it hides the sky.

§ IIRain somewhere else

The headline numbers are good. The Bureau of Economic Analysis’s first estimate has the economy growing at an annual rate of 3.4 percent in the third quarter, up from 2.2 percent in the second, with business investment in information processing equipment rising at a rate of 37.4 percent.

Most of that money comes from four companies. Amazon, Alphabet, Microsoft and Meta, which the industry, with no sense of irony, calls cloud companies, have guided to roughly $730 billion of capital spending this year, more than three-quarters above last year’s.

How much growth does it buy? The estimates diverge widely. ING, after subtracting imported equipment, credits technology investment with about a third of American growth over the past year. Goldman Sachs puts AI’s contribution to measured growth this year at about a tenth of a percentage point, because so much of the equipment is imported, some of it goes uncounted, and some of the spending displaces other investment. The import point is the vivid one. In the national accounts an imported server adds to investment and subtracts from net exports in the same breath. Much of the boom, as the statisticians see it, is rain that falls somewhere else.

It falls on Asia. Taiwan’s exports reached a record $96.8 billion in October, up 58.9 percent on a year earlier. The IMF credits AI investment with holding world growth at 3.1 percent despite the oil shock. “We now have an economy that is standing on one leg, the AI leg,” Kristalina Georgieva, its managing director, told a gathering at the Fund’s annual meetings in Bangkok in October.

But the boom is not simply a matter of investment spending.

§ IIIThe parasol

Climate scientists describe the double life of clouds this way. A cloud can be a parasol, reflecting sunlight and cooling the ground beneath it, or a blanket, trapping heat near the ground. The boom’s largest effect works like a parasol, and its shade falls unevenly.

The ten largest companies in the S&P 500 make up roughly two-fifths of its value, and all ten are on that list of AI stocks. Their shares are owned overwhelmingly by the well-off: RBC economists estimate that the top fifth of households hold about 87 percent of American equities. And the well-off now do much of the spending. Moody’s Analytics estimates that the top tenth of earners accounted for nearly half of consumer spending in 2025, up from about a third three decades ago. ING estimates that the rise in household stock wealth since late 2022, in a market led by AI shares, is adding about 0.44 percentage point to GDP through consumer spending.

Outside the shade, the sun is hot. Employers added just 181,000 jobs in all of 2025. October brought a strong month, 165,000 jobs, but one month is not a recovery, and wages are rising 3.1 percent a year against inflation of 3.7 percent in the year to September.

The IMF has tried to measure what happens if the parasol folds. Unwinding AI investment alone, it found, would leave world output as much as 0.4 percent below its baseline in 2028. Add the fall in asset prices that would come with it, as households and firms spend less in response to lost wealth, and the shortfall grows to 1.1 percent of world output and 1.8 percent of America’s. Painful, but the Fund’s deputy research director doubted that even this would amount to a global recession.

The parasol was tested this month. The day after the midterm elections, stocks rallied. The next day, November 5, an AI sell-off already under way met investors’ fears that newly elected Democratic governors would halt data-center building, which Texas’s Republican governor had already paused. The S&P 500 fell 4.4 percent, its worst day since April 2025, and Nvidia fell 9 percent. The following week the Nasdaq posted its best week since August. The parasol bent and held.

§ IVThe blanket

Clouds also trap heat near the ground, and this boom’s heat reaches ordinary households in two ways.

The first is the power bill. Household electricity prices rose 4.4 percent in the year to September, faster than prices overall, and then 0.9 percent in October alone. Grid costs have many causes, but economists at the Dallas Fed expect the data-center boom to add measurably to inflation through the end of the decade, and the build-out has also pushed up the prices of chips and electronics. Costs like these helped make data centers an issue in this month’s elections.

The second is the price of money. A boom that keeps investment strong and some prices rising gives the Federal Reserve less reason to relent. The Fed raised rates in September, and after a hot October inflation report markets treated another increase in December as all but certain. That heat is felt in mortgages and credit-card bills, by households that own little of the stock the boom has lifted.

§ VThe handshake

The cloud also hides the sky, and part of what it hides is how much of the boom’s demand is real. Some of it has been financed by the boom’s own suppliers, and no one epitomized that style of business more than Jensen Huang.

In September 2025, Nvidia and OpenAI announced that Nvidia would invest “up to $100 billion” in OpenAI as OpenAI deployed at least ten gigawatts of Nvidia systems. It was, in the trade’s phrase, a handshake deal: a letter of intent, not a contract. By early 2026 Huang was saying that the $100 billion had been “never a commitment,” and Nvidia eventually put $30 billion into a larger OpenAI funding round. For months the handshake had stood in the market’s mind for a hundred billion dollars of future demand.

Under Huang, Nvidia became the boom’s banker as much as its armorer. Its quarterly report for the period to late July showed $99 billion of equity investments and $25 billion more in commitments. Its stakes include OpenAI, CoreWeave and Intel, and it has pledged up to $10 billion to Anthropic. It agreed to guarantee, up to $105 billion, the leases on an Ohio campus where OpenAI will run Nvidia hardware for twenty years; the guarantee takes effect building by building from Nvidia’s 2029 fiscal year. It signed memorandums with six financial firms to raise more than $500 billion of outside money for its customers. “This is really the first time that technology chips have become an investable asset class,” Huang told CNBC.

Nvidia was not alone. The IMF has counted fourteen such arrangements across the industry since 2023: about $300 billion of equity and $650 billion of debt, in exchange for $1.4 trillion of promised future revenue. It calls the danger “wrong-way risk”: the investments lose value just when the promised revenue fails.

None of this is illegal, and much of it is shrewd; Nvidia generates enormous cash. But when a supplier invests in its customers, guarantees their leases and lines up their lenders, its sales measure both how much they want its chips and how much it will help them pay. Some strain is showing: customers have been taking longer to pay their bills.

On November 12, Huang resigned as chief executive amid a widening scandal over his personal relationships, one of them with a businesswoman whom American intelligence officials suspect of spying for China, a claim Beijing calls a smear. The shares fell as much as 14 percent during the day and closed down 4 percent; they had been sliding for weeks before the scandal broke. For Galloway, the danger was that the boom had no substitute for Nvidia. Yet the dealmaking was never quite one man’s. In late July, reports that Nvidia might guarantee $250 billion in Ohio sent its shares down; by mid-August the figure was $105 billion. Huang’s successor, for now the finance chief Colette Kress, must decide how many more handshakes to honor.

§ VIThe hidden sky

The sky the cloud hides is the future payoff: whether all this spending will earn its keep. The evidence points both ways. Google Cloud’s revenue more than doubled in the third quarter. In a summer survey of nearly 9,000 executives in seven countries, 78 percent of firms said they use AI; the Census Bureau, asking a narrower question, found about 18 percent of American businesses using it this spring. The same executives credited AI with only about 0.2 percent a year of extra productivity growth so far, but expected 0.6 percent a year over the next three. Researchers at the Atlanta Fed found firms expecting AI’s contribution to their productivity to roughly triple this year, while also reporting larger gains than their own revenue and employment figures imply.

The fairest reading is that adoption is wide, use is shallow, and the payoff so far is real but far smaller than the spending. Economists who studied the electric dynamo found that its payoff took decades to show up in the productivity figures, as factories were slowly rebuilt around the new power. The investors financing today’s data centers are betting the lag will be years, not decades. But the spending is visible now, the return is still behind the cloud, and the leases, bonds and guarantees fall due on a schedule of their own.

§ VIIDark fiber

There is a second precedent, more hopeful than Cooke’s, with handshakes of its own.

In the late 1990s, telecommunications companies buried hundreds of thousands of miles of fiber-optic cable. The equipment makers helped them pay. By the end of 2000, McKinsey estimated, nine suppliers, Lucent, Nortel and Cisco among them, had extended about $25.6 billion to their customers. Nvidia’s stakes and commitments alone come to $124 billion, before its guarantees, though its exposure is mostly equity and guarantees rather than loans. “These kinds of financing usually don’t end well,” warned Jay Goldberg of Seaport Research, Wall Street’s lone seller of Nvidia, recalling Lucent. More than sixty telecom companies failed between 2001 and 2003, and by 2002 most of the long-distance fiber was dark. Yet the fiber stayed in the ground, and over two decades it was lit and became the backbone on which the cloud companies were built.

Why did 1873 bring more than five years of depression and 2001 a recession of eight months? Part of the answer is the financing. Cooke’s losses ran through banks and their depositors, and in 1873 there was no central bank to stop the runs. The telecom losses fell mostly on shareholders, bondholders and the equipment makers that had lent to their own customers, and the Federal Reserve cut interest rates again and again. Part of the answer is who was hurt. In the 1990s the top tenth of earners did about a third of the country’s spending; now they do nearly half.

That is where today’s boom differs from both precedents: in the scale of the borrowing and in who holds it. In the third quarter Alphabet spent $51.4 billion on property and equipment against $42.3 billion of cash from operations and filled the gap with new bonds and shares, though it still held $265 billion in cash and securities. Meta financed its Hyperion data center through a $27 billion private-credit vehicle kept off its balance sheet. Nvidia’s financing platform is being offered to insurers and banks as well as funds. A bust would reach further than in 2001: into private credit and the insurers that lend to it, and through the wealth effect into the spending that now carries the economy. And it would come while the Fed is raising rates, not cutting them. Nothing in the IMF’s numbers looks like 1873. But the margin for error is thinner than in 2001.

One more difference: fiber lasts decades, but chips are superseded within a few years, so an overbuilt AI boom would leave behind less of what cost the most.

The railroads, too, were a good idea paid for badly. The Northern Pacific reached the Pacific in the end, ten years later and under other owners. The depression came first.

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