AI spending poised to match consumer contribution to GDP growth – Citi’s Rob Rowe

[AI Trading Concepts]
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AI spending is expected to contribute as much to GDP growth as private consumption by 2025, marking a significant shift in economic growth drivers, according to Rob Rowe, Citi Research head of global strategy.

In an interview with CNBC, Rowe addressed this inflection point while acknowledging the current slowdown in U.S. economic growth to approximately 1-1.5% in the first half of the year, with expectations of further deceleration to 1% in the second half.

Despite the broader economic slowdown, Rowe remains optimistic about AI (AIEQ [https://seekingalpha.com/symbol/AIEQ]), (ARTY [https://seekingalpha.com/symbol/ARTY]) and capital expenditure prospects, suggesting that markets (SP500 [https://seekingalpha.com/symbol/SP500]), (COMP:IND [https://seekingalpha.com/symbol/COMP:IND]), (DJI [https://seekingalpha.com/symbol/DJI]) are looking beyond current conditions toward future growth potential.

The current AI investment surge focuses primarily on infrastructure rather than software, with significant resources directed toward building data centers, power grids, and chip production, Rowe said.

“Software (IGPT [https://seekingalpha.com/symbol/IGPT]), (XSW [https://seekingalpha.com/symbol/XSW]) isn’t the focus right now, it’s really the data centers (DTCR [https://seekingalpha.com/symbol/DTCR]), the power grid, chips, everything that needs to be built up to handle large databases,” he added, highlighting how this expansion supports the growing digital services sector, which now comprises 40% of global exports.

Unlike the dot-com bubble of the late 1990s, today’s tech companies (VGT [https://seekingalpha.com/symbol/VGT]), (NYSEARCA:IYW [https://seekingalpha.com/symbol/IYW]), (XLK [https://seekingalpha.com/symbol/XLK]) are funding growth primarily through existing cash flows rather than leveraging debt. “Here you’re talking about companies that have very solid earnings, very strong cash flow, and they’re funding a lot of this growth through that cash flow,” Rowe stated, distinguishing the current tech boom from previous cycles.

While technology (XLK [https://seekingalpha.com/symbol/XLK]) and communications (XLC [https://seekingalpha.com/symbol/XLC]) sectors remain key growth drivers for now, Rowe anticipates a broader economic expansion beyond these sectors in the coming year.

“We do expect a broadening out at some point. Probably now, I’m beginning to think that happens next year,” he said, suggesting investors should consider diversifying into other industries while maintaining technology as an overweight position in portfolios.

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