AI Boom Is Triggering ‘Dutch Disease’ In The US Economy, Warns Apollo’s Torsten Slok — ‘The Only Durable Fix Is…’

• Slok said that the AI boom is absorbing capital, electricity and workers at a pace that could leave other parts of the economy struggling to compete for resources.
• He described the dynamic as a form of “Dutch disease,” where a booming sector draws resources away from other areas of the economy.
• In this case, the rapid expansion of data centers and AI infrastructure is creating particularly strong demand for capital and power, according to Slok.

The artificial intelligence boom is creating a new set of challenges for the U.S. economy, according to Apollo Global Management Chief Economist Torsten Slok.

Slok argued in a note on Friday that the rapid expansion of AI investment is creating an unusual economic imbalance, with resources increasingly flowing toward the sectors supporting the AI buildout.

Slok Says AI Boom Is Pulling Resources Away From Other Sectors

The AI boom is absorbing capital, electricity and workers at a pace that could leave other parts of the economy struggling to compete for resources, Slok said.

He described the dynamic as a form of “Dutch disease,” where a booming sector draws resources away from other areas of the economy. In this case, the rapid expansion of data centers and AI infrastructure is creating particularly strong demand for capital and power.

That is happening even as more rate-sensitive parts of the economy, including housing and autos, face greater pressure from elevated interest rates.

The contrast is especially notable because higher borrowing costs would normally be expected to cool investment and spending. Slok said the AI buildout has been different, with hyperscalers continuing to spend heavily as they compete to expand their AI capabilities.

Consensus estimates for AI capital expenditures in 2027 have continued to rise, he noted, with no clear indication that investors expect the spending boom to slow next year.

AI Could Make The Fed’s Job Even Harder, Warns Slok

Slok warned that this imbalance creates a difficult situation for the Federal Reserve because monetary policy is having different effects across the economy.

Higher rates are weighing on sectors such as housing and autos, but they have done little to curb the AI investment boom, he said.

Slok cautioned that if AI spending continues to support economic activity while also contributing to inflationary pressure, the Fed could find it harder to use interest rates to cool the broader economy.

He argued that this could also leave policymakers in a difficult position, where rate-sensitive sectors may continue to weaken while the AI economy remains relatively resilient.

That could ultimately keep interest rates higher for longer, particularly if the AI boom remains strong alongside the fiscal boost from the One Big Beautiful Bill.

“Because monetary policy cannot resolve this sectoral imbalance, the only durable fix is expanding the supply of power, chips and infrastructure,” he added.

Slok Warns Of Impact Of A Potential Unwinding Of AI Capex Boom

In a previous note, Slok warned that while the AI infrastructure spending boom is soaring at a pace that is unmatched by previous investment cycles, it could also unwind at a similar pace if AI demand disappoints eventually.

He added that AI investment is accelerating at about 0.85 percentage points of GDP annually, significantly faster than the peak housing boom at roughly 0.5 percentage points and the telecom investment cycle at around 0.15 percentage points.

“A cycle that builds at 0.85 percentage points a year can unwind at a similar pace, and that, rather than the buildout itself, is the macro risk if AI demand disappoints,” he said.

During the after-hours session on Friday, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was flat; the Invesco QQQ Trust ETF (QQQ) edged up by 0.01%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.02%. Retail sentiment on Stocktwits toward the S&P 500 ETF was in the ‘bullish’ territory at the time of writing.

The Global X Artificial Intelligence & Technology ETF (AIQ) is up 30% over the past 12 months, while the iShares U.S. Technology ETF (IYW) is up 34%.

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