Recent fretting about the uncontrolled pace of AI development has investors and U.S. officials nervous that the industry could soon shift into a lower gear—and potentially slow the entire American economy along with it.
In recent days, leading AI figures like OpenAI CEO Sam Altman and Anthropic’s Dario Amodei have warned that breakneck advances have created an imminent risk of rogue AI “swarms” capable of “taking over the entire internet.” This came after former developers, notably—former Anthropic researcher Jacob Coxon—warned that frontier systems could pose an existential threat to the human race and that companies pioneering the tech were failing to comprehend these dangers.
In an essay titled “We Must Pace the Frontier,” Amodei called on governments and fellow developers to put in place safeguards and “slow the pace at which we improve the capabilities of AI models.” Other notable names, including Elon Musk and Google DeepMind CEO Demis Hassabis, have echoed his calls, though Mark Zuckerberg and Nvidia’s Jensen Huang have rejected proposals to rein in development.
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And President Donald Trump has dismissed such existential concerns as a “hoax” and “sick conspiracy” that will let China pull ahead in the AI race—having in the past defended data centers as critical to the U.S. economy.
Whichever side time proves correct, the staggering investments made in the technology and its associated infrastructure mean that the U.S. economy and AI have become increasingly tethered, and that any changes when it comes to developing and rolling out the latter will inevitably reverberate through the former.
The Stock Market
If you own an S&P 500 index fund, around one-third of your money is currently tied to seven stocks—the “Magnificent Seven”—nearly all of whom have become major players in the AI space. The group, which includes Nvidia, Alphabet and Meta, represents some 34 percent of the index’s overall value, according to recent calculations by the Motley Fool, and technology has therefore been credited with the gains recorded by U.S. stocks in recent years.
But an observed disconnect between investor enthusiasm and the technology’s realized—or even realizable—returns has aroused fears of a “bubble” forming in the market that, when popped, could lead to a crash similar to that which followed the late-1990s Dot-Com Boom.
In a recent analysis, Fitch Ratings estimated that a “severe AI-related equity price shock” alongside a sizeable drop in AI-related capital expenditure could push the U.S. economy into a recession and drag down economic growth worldwide.
After leading AI figures began issuing warnings over AI’s potentially apocalyptic capabilities, this week began with a sharp selloff of tech stocks that analysts said were reflecting fears of such an imminent slowdown.
“Monday’s move suggests investors read the safety talk primarily as a signal about future capital expenditure,” according to Boris Vallée, associate professor of finance at the European Institute of Business Administration (INSEAD) in France.
“Current valuations across AI infrastructure assume years of rapid, uninterrupted growth. When frontier lab executives publicly call to slow capability advances, markets immediately downgrade those forward growth assumptions,” said Ben Charoenwong, a professor of finance at INSEAD’s business school campus in Singapore.
However, Charoenwong said that this selloff “reflects a downward adjustment in growth expectations,” and was not confirmation that the AI bubble—if it exists—was popping.
Jobs and the Economy
Markets aside, AI and the ongoing “buildout”—creating the infrastructure needed to train and run it—is playing an increasingly central role in parts of the economy, implying that a swift pullback in AI spending could itself carry major financial consequences.
An analysis published in January by the St. Louis Fed noted that investments in software, R&D, computing equipment and new data centers were proving an “important driver of growth,” and contributed “significantly” to gross domestic product (GDP) last year.
“As firms continue integrating AI into their operations and building the infrastructure required to support it, these categories are likely to remain significant drivers of investment well into 2026 and beyond,” researchers wrote.
Mark Zandi, chief economist at Moody’s Analytics, has calculated that AI and associated spending is fueling around a quarter of the country’s otherwise paltry economic growth, while The Economist last year cited estimates that the contribution to GDP growth could be as high as 40 percent.
And in its mid-year outlook published in June, the U.S. investment firm KKR predicted that AI-related economic growth could become “more extreme than anything we have seen since the start of the second industrial revolution in the 1870s.” However, the company predicted that this would be concentrated across only a handful of sectors.
Manufacturing has been one such case, and in addition to raw economic momentum, businesses have credited the AI buildout with holding up otherwise shaky parts of the American labor market.
In the Fed’s latest “Beige Book”—a collection of interviews with economic stakeholders across the U.S.—the report’s authors said that a “high concentration of activity related to data center projects” had helped boost economic activity across the 12 Federal Reserve Districts.
“Demand for manufactured goods increased at a robust pace, driven by data center development and defense spending,” read a section on the Federal Reserve Bank of Cleveland.
It went on to also quote a contact in Chicago who said that “without data centers, construction would be in a recession.”
If China Wins
The growing importance and adoption of AI means a safety-related slowdown could curb some of the enthusiasm that has kept the U.S. economy afloat in recent years. However, to U.S. officials and some analysts, the true risk would be surrendering America’s current lead in the AI race to China.
Kyle Chan, a fellow at the Brookings Institution’s John L. Thornton China Center, said that China pulling ahead when it comes to developing and integrating AI “could boost their economic growth and make their industries even more competitive globally.”
“If China does a better job of integrating AI into their military, this could pose risks to peace and stability in Asia and beyond,” he told Newsweek. “It might give China a way to catch up or even surpass the U.S. on things like autonomous weapons systems and real-time data collection.”
In his essay published last week, Amodei himself said that a critical element of a “pacing the frontier” strategy would involve keeping “democracies’ AI lead over autocracies as large as possible.” Doing so, he said, means preventing China from acquiring “powerful AI chips or semiconductor manufacturing equipment,” and clamping down “on chip smuggling operations.”
Many view any hesitancy in the breakneck development and adoption of AI in the U.S. as inherently a gift to China, though others also note that the current trajectory is not without its own complications and consequences ranging from the apocalyptic to purely economic.
“The existential framing draws the headlines, but the threat most individuals will actually experience is economic: displacement, wage pressure, and the reorganization of entry-level work,” said Vallée. “The catastrophic scenarios are what the industry debates among itself. The labor market effect is what households will feel the most.”
“Beating China in the AI race doesn’t actually mean America wins, period,” said Chan. “We could still lose if AI causes large-scale layoffs or if the technology gets out of control and starts to disrupt key infrastructure.”
Newsweek’s reporters and editors used Martyn, our AI assistant, to produce this story. Learn more about Martyn here.
Contact Newsweek editors on this story: Daniel Orton and Gray R. Thomas