By Martin Baccardax

When does $360 billion buy you fewer jobs? When it is spent on artificial intelligence.

The world's largest tech companies, all of them based in the world's biggest economy, say they will spend that much this year alone to build the data centers that will house their AI technologies. Planned investment to build, run, and power AI infrastructure could rise to around $7 trillion by the end of the decade, according to a study from McKinsey.

At present, however, the staggering sums are simply not having a positive impact on the job market. And AI development is likely to keep a lid on hiring over the mid and longer term.

The domestic economy has lost around 78,000 manufacturing jobs so far this year, according to data from the Bureau of Labor Statistics published on Friday, including another 12,000 last month. Heavy construction and civil engineering, the sector most likely to build data centers and expand or upgrade the power grid, has added only 8,000, including the 7,000 lost in August.

In Virginia, with the world's largest collection of data centers -- around 330 data centers are planned or have been built -- construction job gains this year are down by around 10% from last year's levels.

That is a poor return for the economy from the estimated $69 billion spent over the three months through June by Amazon.com, Microsoft, Alphabet, and Meta Platforms, which economist Paul Kedrosky equates to an annualized pace of $276 billion. He estimates AI capex accounted for just under half of second-quarter gross domestic product growth.

Peter Berezin, chief global strategist at BCA Research, addressed how so much spending could bring so few job gains in a summer research note. Most of the enormous amounts of capex by the so-called hyperscaler tech companies "consists of spending on Nvidia chips and other tech equipment, much of which isn't manufactured in the U.S.," he said.

Bryant VanCronkite, senior portfolio manager at Allspring Global Investments, thinks that a shortage of labor could be an issue. "It is probable that immigration policy changes are holding back the job growth numbers we would expect to see," he said.

AI isn't only a disappointing contributor to job gains. It is also slowing down hiring across a host of sectors and accelerating layoffs in others: Challenger Gray & Christmas reported in its closely-tracked report of corporate layoffs last week that AI was linked to around 31,000 job losses so far this year.

Rebecca Patterson, a senior fellow at the Council on Foreign Relations, argues that there's little evidence to suggest that AI is to blame for the cooling job market at present. A recent survey from the New York Fed echoed that view.

But she does see changes on the way. "There is reason to believe that AI will, directly and indirectly, start displacing a more significant number of jobs in the months ahead," she said. "The question now seems less about whether AI will negatively affect the labor market and more about by how much."

For investors, the worrying implication of an AI spending boom that is ultimately negative for overall employment is that it could mean stocks go higher, regardless of what is happening in the real economy. That is a recipe for short-term gains and longer-term pain.

The 10 biggest U.S.-based tech stocks comprise around 41% of the S&P 500's total market value, which means they account for the lion's share of the benchmark's 11% rally to record levels so far this year. But economic growth is slowing down, and the job market is weakening.

That could leave investors to wonder whether the productivity gains promised by AI can offset the fact that companies will have fewer people to whom they can ultimately sell their products. Greater efficiency enhances earnings, but revenue generates it.

Write to Martin Baccardax at martin.baccardax@barrons.com

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September 09, 2025 02:30 ET (06:30 GMT)

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