At 3.6% Of US GDP, The AI Boom Is Bigger Than Dotcom Bubble. SBI MF Explains

The significant surge in AI investment has boosted strong growth, especially in the US despite huge borrowings by hyperscalers and tech firms put pressure on long term bond yields. The expenditure marks one of the largest capital spending cycles in history, with average annual AI capex is estimated at around 3.6% of US GDP over 2025–32, more than the 1.1% during the 2000 dotcom cycle and 2.2% during the 19th-century railroad boom, according to a report by SBI Funds Management.

With the soaring expenditure, doubts over AI revenues could raise questions over sustainibility of capex at current financing costs. Its impact would also be felt in related sectors such as US equities and in the economy's US growth, along withhow money is allocated across asset classes. One reaction could be a move out of US equities, where valuations already look stretched. Recent worries around sustainability of the AI boom have led to a repricing in US treasury yields and some rotation of FPI flows back into India.