According to BlackRock’s most recent weekly analysis, the US may need to deal with an inflationary flare-up in order to fully realize the potential of artificial intelligence.
Since ChatGPT’s peak last year, capital spending on AI data centers has surged, according to a Monday analysis by experts led by Jean Boivin. AI will probably be inflationary in the short term before realizing any of the long-term benefits that could reduce inflationary pressures because of this capex boom and resource demand that could lead to bottlenecks.
Wall Street has been fully committed to AI since late 2022, believing that the nascent technology will significantly boost output and yield substantial financial rewards. Wedbush Securities projects that during the next ten years, businesses will invest $1 trillion in artificial intelligence.
A portion of the money is going into building the data centers and energy grids that support AI infrastructure. As BlackRock points out, this is beginning to affect supply in the larger market.
For example, AI is predicted to contribute to a 160% increase in electricity consumption by 2030, which has placed a significant demand pressure on copper. Indeed, the disparity between supply and demand was so significant that the commodity experienced a temporary spike to above $11,000 per ton in late May.
However, neither markets nor central banks have yet to recognize the threat of AI-driven inflation, according to BlackRock.
Instead, the majority of Wall Street is preparing for further gains from the tech boom, and the company anticipates that returns will continue to rise for another six to twelve months due to a small number of AI winners.
The consensus is that there is still more opportunity for the AI rise, which is backed by profits. According to analysts, there is no evidence of an AI bubble, and the lucrative tech giants are very different from the loss-making firms that drove the dot-com bubble.
BlackRock anticipates that global monetary policy will continue to be tighter in the long run, not just the short run. Production is being restrained globally by aging populations, shifting supply chains, and the low-carbon transition, according to the report.
