How AI is creating a lopsided US economy

The US stock market is increasingly dominated by a small group of technology and AI companies, creating a sharp divide between booming firms and much of the wider economy. Tech stocks make up about 44 per cent of the S&P 500’s value, while its ten largest companies account for roughly 39 per cent, compared with 27 per cent at the height of the dot-com bubble. Since April, around 230 S&P 500 companies have lost a combined $2.9 trillion. Gains by six major companies - Apple, Meta, Microsoft, Micron, Nvidia and AMD - have more than offset those losses: together they added over $5 trillion and generated 57 per cent of the index’s total gains. Without them, the S&P 500 would have risen 4.35 per cent, less than half its actual 10 per cent increase. Figures are in Australian dollars.

The boom carries risks beyond concentrated market valuations. Some chip makers are already highly profitable, but AI labs’ revenue remains small relative to the spending made on their behalf, and major technology companies’ AI investments are growing faster than their profits. Increasing reliance on debt adds vulnerability. Financing can also circulate among companies that are simultaneously investors, suppliers and customers: Nvidia, for example, announced up to $144 billion in investment in OpenAI infrastructure; OpenAI agreed to spend $430 billion on Oracle data centres; and Oracle planned $58 billion in Nvidia chips. This makes it harder to distinguish real customer demand from purchases enabled by suppliers’ own funding, and links the companies’ fortunes. Trouble at a major player such as OpenAI could therefore ripple through a market where AI firms already have outsized influence.