As prices for just about everything rise and wages for American workers remain nearly stagnant, politicians like President Donald Trump have tried to reassure us that the economy is “strong” and the stock market is booming. “This is the best ever, the best ever, the best ever,” President Trump said at an event in Florida earlier this month.
- Nvidia, the most important company in the world, is driving the overall growth of the U.S. stock market more than in recent memory.
- If it stalls, the entire U.S. economy could collapse, and there are signs of that happening.
- The shockwaves of Nvidia’s collapse will be devastating and far-reaching because of the AI supply chain, from tech startups and cloud computing to construction, land development, and steel.
Still, despite a strong year for the stock market, it’s hard to find a day when a podcaster, influencer, or economist isn’t warning that the AI boom driving the economy could be a bubble, one about to burst.
The company driving Wall Street’s forward movement is Nvidia, the most valuable company on the planet. That’s because data centers, which have recently proliferated across the country, are equipped with Nvidia’s graphics processing units (chips).
So why has the health of this one company become so influential in the economy? And why does its health scare so many people? Today’s explanation co-host Noel King asked the economic commentator, educator, and author. In this economy? Kyla Scanlon.
Below are excerpts of their conversation, edited for length and clarity. There’s more in the entire podcast, so listen Today’s explanation Apple Podcasts, Pandora, Spotify, and wherever you get your podcasts.
The market these days is like a roller coaster. When you ask why, the answer is generally Nvidia’s fault. Why is the world watching Nvidia with bated breath? What’s the concern here?
Nvidia is kind of the poster child for building AI as a whole. That’s why every technology company, from Microsoft to Meta to Amazon, bases all of its future plans on Nvidia. (When you hear about “circular financing,” that’s what it means.)
Nvidia is integrated into the broader market and is such a big part of AI that if they sneeze, everyone else gets a cold. The market is a little nervous. The whole story of AI is [and] Therefore, the entire stock market [and] Therefore, the entire economy depends on Nvidia maintaining its rather impossible growth metrics.
I sincerely believe that something like this should never happen, that there should never be one company of such scale and importance that it shakes up the world’s markets.
What the hell happened here?
Nvidia quickly became huge and the US economy decided to design itself around AI. As we know, 40% of GDP growth is due to the development of AI. And Nvidia has become something of a macro variable because of its focus and the U.S. economy’s bet on AI.
You can think of their earnings reports in a similar way to the employment and inflation reports you get from the BLS. Nvidia’s earnings day will test the AI story, and therefore the US economy. It’s simply because we spent a lot of money on data centers [capital expenditure] — There’s a lot of money going into these chips, and these companies are continually expanding. So that’s what happened.
What other company has this kind of influence? Does Walmart or Chevron have that kind of power?
No, NVIDIA is a big part of the S&P 500. This represents almost 8% of the total index. I think this contributed to one-fifth of the index’s overall rise this year.
Walmart is not a large part of the S&P 500, and it hasn’t driven much growth, profitability, or investment. Nvidia is really special in that regard. …
The S&P 500 has always been top-heavy. There will always be companies that are more important than others. But without NVIDIA, the story of 2024 and 2025 will look like economic stagnation.
You know the old adage: “The stock market is not the economy.” Is Nvidia just playing this huge role in the market, or is it a bigger part of the economy among other parts? If Nvidia stumbles, will a million Americans lose their jobs?
I don’t think it’s that extreme. The stock market is definitely not the economy, but it is becoming increasingly intertwined because the AI story is so important. If Nvidia goes bankrupt, doctors, bus drivers, construction workers, etc. won’t suddenly lose their jobs.
It would just cause the stock market to collapse and the economic growth story to collapse. And you’ll see side effects as well. Perhaps NVIDIA imploding would lead to some kind of recession, so it’s like a construction company deciding to start laying off workers. But it’s not a direct correlation.
Everyone has been asking, “Are we in an AI bubble?” And recently I’ve seen someone suggest that this will be one of the big signs of whether or not Nvidia will pop.
What do we know about the AI bubble threat and Nvidia’s role?
If I had a nickel for every time someone talked about the AI bubble, I could invest in Nvidia. But I think you can think about it like this: Nvidia is all about AI theory.
If Nvidia suddenly stumbles, there are growing concerns that it will stumble in the future, since its growth path is so impressive and so pretty unsustainable. because This is very impressive. Companies may withdraw tens of billions of dollars in data center spending. Cloud providers will slow their expansion, and startups built around “AI is the future” will face funding issues. The stock market will lose double-digit percentages. The regional construction boom associated with data centers will slow. In a place like Iowa, which has helped revitalize local economies to some degree, everyone from steel mills to electrical workers to construction workers to land developers will be shocked.
And of course, if the stock market falls, the entire economy will ultimately suffer. In that case, the Federal Reserve would have to come up with some kind of emergency funding plan. President Trump may need to come up with a fiscal policy plan to prevent the bottom from falling out and causing a major explosion.
The worry is whether Nvidia will withdraw. [down]the entire AI supply chain will become unstable. And since the economy and stock market are so tied to it, it can actually cause other effects.
After all, what do you think a company like NVIDIA means for the American economy? It’s a beast. It occupies a large share of the market.
Where do we stand with such an influential company?
Greg Ip of the Wall Street Journal wrote a great article calling Nvidia a joyless technological revolution. And I think that’s a very good idea. If AI trading goes well, [then] Only a select few will benefit, right? So companies like Nvidia, people will invest in Nvidia piece by piece. Companies like Open AI, companies like Anthropic stand to benefit greatly if all of this ultimately works out.
But AI losses are becoming socialized. So if data centers suddenly go down and AI trading completely explodes, people’s retirement accounts will take a huge hit. Because the S&P 500 is what most people invest in in their retirement accounts, and Nvidia, as we discussed, makes up a lot of the S&P 500. And even if the data center doesn’t work out, there will be many communities that have pinned their hopes on the data center and dreamed of it working and creating more jobs. There are certain problems with AI and Nvidia becoming such a large part of the economy.
That’s why Greg calls this a joyless technology revolution – because a lot of people don’t like this. I think that’s a very important thing to consider. I think the statistics were that 6 out of 10 Americans essentially didn’t want all of this. They don’t like what AI companies are promising, especially when CEOs come along and say they’re going to take people’s jobs away.
Then there is also a chart from [Financial Times] I think that’s a nice summary of this broader conversation that we continue to have a lot. Something like this: AI has the potential to end scarcity – the solution to everything. The end of humanity, the death of all humans. Alternatively, it could boost GDP by 0.2 percentage points. And that’s similar to how the internet was to a certain extent.
It looks like the inequality problem we’ve been grappling with for about a generation may actually get worse.
The frustrating thing about the AI debate is that everyone is talking about it, but there are still no policy solutions. We have no idea how to reskill people. I don’t know if we need some form of UBI, universal basic income, to help people in the transition period.
There are many lessons we can learn from what happened in the Rust Belt, when manufacturing went overseas, and how it destroyed local communities. Over time, something similar may happen with AI.
