By Randall W. Forsyth

It is an odd sort of bubble where jeremiads abound decrying the risks posed by the huge surge in investment in artificial intelligence. Perhaps AI one day will put an end to humanity but, for now, worries about its investment risks may be a bit overblown.

Without AI, the U.S. economy would be dead in the water, according to Jason Furman of Harvard, a former head of the Council of Economic Advisers under President Barack Obama. And countless analyses have described how much the stock market's advance owes to the AI-driven gains of the technology megacap names, and how much it will hurt if it comes a cropper. That includes a New York Times op-ed from Jared Bernstein and Ryan Cummings, respectively, the head of and an economist on President Joe Biden's CEA.

All of which echoes former Fed Chair Alan Greenspan's famous "irrational exuberance" warning voiced in 1996, more than three years before the dot-com bubble burst. What's different this time (there's that fraught phrase again) is that the economy continues to grow, not just from AI.

BNP Paribas economists push back at the assertion the economy is just about AI. They calculate that AI-related technology and capital spending account for about one-quarter of recent U.S. gross domestic product growth (about 0.5 percentage points), in line with historic norms. The wealth effects from the AI-inspired stock gains may have added another 0.4 percentage points to GDP growth. In the quarter just ended, the Atlanta Fed's GDPNow model is tracking 3.9% annualized growth, after inflation.

The lack of official U.S. government data doesn't belie what's happening. As Bob Dylan famously observed, you don't need a weatherman to know which way the wind blows. Looking out the window also can give a lot of meteorological information. Listening to companies' assessments of their businesses similarly provides a valuable picture.

To get a handle on that, we turned to Peter Boockvar, chief investment officer at One Point BFG Wealth Partners. That title encompasses two functions; watching the macroeconomy as well as an array of stocks for clients' portfolios, which gives him a sharp view even while Washington's data factories are shut down.

Quarterly-earnings reporting season, now in full swing, provides valuable insights. The big banks, which are among the first to report, have been pretty sanguine about the economy, Boockvar says. "Resilience was the word they used about the consumer," he related in an interview this past week. "But the question is whether resilience is the same as growth."

The bifurcation among rich and less-well-off consumers continues to be writ large. Domino's Pizza noted weakness as the latest quarter progressed, while luxury goods purveyor LVMH Moët Hennessy-Louis Vuitton reported spending by upper-income consumers was on the rebound, both in the U.S. and Asia and Europe.

On the corporate side, lending at the biggest banks, such as JPMorgan Chase, Bank of America, and Citigroup, seemed to be fine, he added, with a few actually lowering loan-loss reserves. But JPM's Jamie Dimon once again dominated the headlines with his observation that there may be more "cockroaches" among corporate borrowers after the recent blowups at First Brands and Tricolor.

This past Thursday also saw steep drops in the regional bank stocks led by Zions Bancorp and Western Alliance Bancorp, which sent the SPDR S&P Regional Banking exchange-traded fund tumbling 4.6%. That put the ETF down 14% from its November 2024 recent peak, in an up stock market.

These cracks in credit come amidst the robust overall U.S. economy. As noted here previously, spreads (the extra increment of yield over putatively risk-free government obligations) in publicly traded investment-grade and high-yield bonds remain at historic lows. But Loomis Sayles' proprietary credit gauge finds bottom-up fundamentals to be sound and well above a "worry" signal.

Meanwhile, the tracking of sales-tax data by The Liscio Report, or TLR, shows that the share of states (weighted by population) topping their revenue forecasts slipped in September, to 34% from 62% in August. Collections were especially weak in the Upper Midwest, reflecting a drop in crossings over the Canadian border, and were strongest in the richest states with the biggest shares of investment banking activity. TLR was started by Barron's alumnus John Liscio, who acerbically observed that economists can't forecast the future because they couldn't get the present right, so he started tracking it for them.

Corporate earnings calls provide a mixed picture similar to the Fed's Beige Book, the compendium of anecdotes from the 12 district banks prepared for the Oct. 28-29 Federal Open Market Committee meeting, Boockvar says. Even though that isn't enough to support another interest-rate cut at the coming policy-setting confab, it is all but certain to be coming anyway, wrote John Ryding, chief economic adviser at Brean Capital, in a research note on Friday.

Perhaps skepticism is the best thing the stock market has going for it. Along with the proliferation of commentary about an AI bubble, the CNN Fear & Greed Index managed to improve into the Fear zone on Friday from Extreme Fear on Thursday. To twist another cliché, a watched bubble doesn't usually burst, especially when easy money continues to inflate it.

Write to Randall W. Forsyth at randall.forsyth@barrons.com

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October 17, 2025 18:38 ET (22:38 GMT)

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