When A.I. Spending Starts Slowing, Start Worrying About Recession | Wolf Richter

Richter describes an AI buildout that is putting trillions of dollars into the economy and driving higher orders for domestic power generators and electrical equipment, with benefits for manufacturing, construction, and infrastructure companies. But he says that activity will not continue at the same level once the buildout slows, and argues that the revenue model remains uncertain because consumers already spend 96%–97% of their income and cannot suddenly add $3 trillion in annual spending.

Richter says AI investment and annual government deficits of a couple of trillion dollars are helping support spending, while faster nominal growth can help limit the debt-to-GDP ratio on roughly $40 trillion in federal debt. He says Q2 nominal GDP growth of 8.5% outpaced debt growth of about 8% or slightly less, and warns that a decline in AI investment could weaken nominal growth; he does not see a recession on the horizon now.

Richter says AI-related companies account for almost half of S&P market value, making a downturn less contained than the dot-com bust in his view. He warns that a major sell-off combined with slowing AI spending could contribute to recession, while describing a possible scenario in which stocks fall 15%–20% and then another 20%—a risk scenario, not a certainty.

Richter distinguishes $7 trillion in credit-card purchases during 2025 from roughly $1.3 trillion in outstanding statement balances, saying most purchases are paid off rather than becoming interest-bearing debt. He puts overall card delinquency at about 2.8%, below the 6.5% financial-crisis peak, and argues that higher-income borrowers carrying more debt—not low-income consumers—drive increases in delinquent balances.