Axios

The boom in spending on AI infrastructure and services is sustainable because it's driving meaningful innovation, the CFO of Amazon Web Services tells Axios.

Why it matters: Some investors and analysts are getting nervous about an AI bubble, with an eye on ballooning debt, corporate valuations and circular financing deals and whether revenue growth can keep pace with massive infrastructure spending.

It was an economy bursting at the seams: robust growth powered by a tech boom, low unemployment, elevated inflation and Fed rate hikes to try to cool things down.

The big picture: That was the situation in the year 2000, and it reminds us a great deal of the conditions in 2026.

• The worrying part, however, is this: Then, as now, there were early warning signs that the technological boom powering the good times may not last forever.
• And indeed, the cracks that appeared in the tech sector in 2000 would spill over into a broader bear market and mild recession in 2001.
• We're not predicting that this time. History only rhymes; it doesn't repeat. But it is a historical episode worth weighing when thinking about the range of possibilities for how things may go in 2027 and beyond — particularly this week, as the debt markets funding the AI build-out have wobbled.

Flashback: While 2001 was a nasty year for the U.S. economy — a full-fledged tech bust exacerbated by the Sept. 11 terrorist attacks — the year before was pretty great by nearly every measure.

• The unemployment rate reached a multi-decade low of 3.8% in April 2000 and closed the year at a mere 3.9%.
• GDP rose 4.1% for the full year, powered by stunning rates of productivity growth.
• It coincided, however, with high inflation, driven particularly by surging energy costs. The Consumer Price Index was up 3.4% over the course of the year.

Zoom in: Against that backdrop, the Alan Greenspan-led Fed felt compelled to try to cool things down, lest that inflation become more entrenched. The central bank increased rates three times that year, including a super-sized half-point in May.

• But here's where the parallels to today get even more interesting: Greenspan's justification for rate hikes could be lifted from today's Fedspeak about the AI boom — or would be if today's central bankers shared his penchant for circumlocution.

What they're saying: The "profoundly beneficial forces driving the American economy to competitive excellence are also engendering a set of imbalances that, unless contained, threaten our continuing prosperity," Greenspan told Congress in February 2000.

• "The problem is that the pickup in productivity tends to create even greater increases in aggregate demand than in potential aggregate supply," he said.
• "This occurs principally because a rise in structural productivity growth has its counterpart in higher expectations for long-term corporate earnings."
• "This, in turn, not only spurs business investment but also increases stock prices and the market value of assets held by households, creating additional purchasing power for which no additional goods or services have yet been produced."

Between the lines: He was talking about the productivity boom driven by the internet and related IT innovations of that era, but it is very much applicable to the AI boom today.

• Yes, AI-fueled productivity could create a boost to the economy's supply potential in the future, with corresponding noninflationary growth and higher incomes.
• But that's in the future. Right now, that potential is causing surging asset prices and rising demand for inputs to the build-out, pushing inflation higher.

Reality check: The stock market peaked in March 2000. By 2001, an all-out tech rout was underway, as much of the investment in fiber-optic cable and other internet infrastructure was ahead of its time.

• That reversed the playing field for the Fed, as the wealth effects and an investment boom that appeared to be overheating the economy in 2000 instead dragged it down.
• The Fed enacted a surprise half-point rate cut on Jan. 3, 2001, and would ultimately cut rates 11 times (!) in 2001.

Yes, but: Interestingly, while the tech bust hammered Americans' wealth, employment prospects and capital spending, the turn-of-the-century productivity gains continued throughout that recession and the ensuing jobless recovery.

The bottom line: Even if the AI boom drives the kinds of long-term productivity surges its proponents anticipate, there is a risk of a bumpy path ahead — and policymakers would do well to study the parallels from 26 years ago.

When solar panel installers go out of business, homeowners can be left "orphaned" with loan payments due and no clear path to repairs for their panels.

• Florida-based SoFlo Solar founders Luis Galarza and Laura Gutiérrez believe there are potentially millions of solar orphans across the country and expect the number to increase.

The adults have entered the AI chat — bond investors this week looked up from their massive buying binge and asked themselves, "Hey, are we sure these investments are going to pay out?"

Why it matters: The AI boom is looking a little wobbly these days, at least when it comes to all the borrowed money that's fueling it.

Federal Reserve chairman Kevin Warsh said Friday that the economy has largely performed as expected since September's rate hike, hinting that little has changed in the central bank's outlook.

Why it matters: The Fed is weighing another interest rate increase later this month as inflation heats up and the economy remains strong.

Wall Street appears to be hitting its limit on AI, and financiers are starting to say the quiet part out loud: All of this AI spending doesn't look like it can pay off, at least not for everyone.

Why it matters: The gap between what it costs to build AI infrastructure and what companies are actually paying to use it is widening. Wall Street's anxiety is surging as the debt piling up to fund data centers and chips looks increasingly disconnected from economic reality.

Elon Musk finally unveiled his long-promised next-generation Tesla Roadster, and it's every bit as outrageous as you'd expect from a man who launches rockets into space.

• The car flies, does backflips and even drives upside down.

Why it matters: Musk's latest creation — a collaboration between Tesla and SpaceX engineers — pushes the boundaries of automotive technology, even if it's hard to imagine what practical purpose a flying sports car might serve.

Tesla is expected to unveil its Roadster Thursday night, potentially featuring SpaceX-designed thrusters that could literally lift the car off the ground.

• A much bigger Tesla-SpaceX tie-up — the long-speculated merger of Elon Musk's two companies — could come as soon as this fall, say analysts at the Barclays investment bank.

The big picture: Musk's business empire is becoming increasingly interconnected, raising the prospect of a combination that would consolidate his control over two of the world's most valuable companies, while allowing both to move faster on big AI projects.

Abu Dhabi — which pioneered TAMM, an AI-driven app that eases citizens' day-to-day interactions with government — is launching TAMM Global, a new company that will make TAMM's technology and operating model available to governments worldwide.

• Other governments now can modernize service delivery by licensing and deploying "bespoke versions of TAMM, adapting the platform to their own laws, policies, public services and citizen needs," the announcement says.

Apple and Meta, whose leaders have spent years trading barbs over privacy and the future of computing, are joining forces to bring one of America's most powerful open-weight AI models to Apple's high-end Macs.

Why it matters: The collaboration marks a striking detente between two longtime Silicon Valley rivals, underscoring how the AI race is reshaping relationships across the technology industry.

• The companies still compete over devices and the next generation of computing, but both see an opportunity in bringing powerful AI capabilities to personal computers.
• "We're excited for mommy and daddy to be playing nice again," Meta AI chief Alexandr Wang told Axios.

A grocery chain says it now costs more to ship a head of lettuce from California than to buy the lettuce itself. Tech companies are trying to purchase entire inventories of electrical equipment to build data centers.

Why it matters: These anecdotes from the Fed's latest Beige Book show how two extraordinary forces — the AI buildout and the Iran war — are changing decisions about spending, investment and hiring.

• The implications extend beyond individual firms, with consequences for inflation and employment, as the Fed weighs another rate hike.

Zoom in: A grocery chain told the Richmond Fed that diesel prices have risen 30% from a year earlier — making shipping lettuce more expensive than the cost of the vegetable — but price-sensitive customers have left it unable to pass along the higher costs.

• The energy shock is also squeezing businesses locked into earlier contracts: A Montana timber company said fuel costs had more than doubled on a project negotiated months earlier.

The AI boom is creating another strain, intensifying competition for equipment needed to build data centers.

• An electrical equipment distributor told the Chicago Fed that tech companies tried to buy up all of its available equipment. Suppliers resisted, citing commitments to other customers.

What to watch: AI is changing how many workers businesses believe they need and what they need them to do in ways not yet apparent in broader labor market data.

• In Dallas, an accounting industry contact said some large firms were delaying employment contracts because AI productivity gains could reduce their need for entry-level workers.
• A staffing firm in the area said AI agents conducted more than 180 hours of job interviews in two days, leaving human recruiters to review the results and make hiring decisions.

Established media brands like The Atlantic and MS NOW are betting on in-person experiences to grow their brands and build lasting communities.

Why it matters: The strategy reflects the importance of direct relationships with audiences, since reach alone doesn't capture loyalty and trust.

Bending Spoons on Wednesday secured a $330 million investment from existing shareholder Berkshire Hathaway.

Why it matters: The Italian software conglomerate, known for buying legacy brands like AOL and Vimeo, now has more dry powder for M&A.

Frontier, the group of big companies jump-starting carbon removal markets, has brokered $11.7 million in new purchase deals with the startup 44.01.

Why it matters: It's Frontier's first purchase using a promising but nascent method that turns CO2 into rock, potentially opening up new locations for permanent carbon storage.

CoreWeave was at the heart of the market's volatility Wednesday.

Why it matters: The heavily indebted, cash-burning neocloud — a data center operator that effectively rents out its AI computing capacity — is seen as something of a canary in the coal mine for the broader AI trade.

• The sharp sell-offs in its bonds and stocks underscored how jittery investors are getting about the AI investment binge.

The four-star general leading the military's high-stakes space missions sees critical gaps in the nation's arsenal to counter China's and Russia's emerging threats.

Why it matters: Gen. Stephen Whiting, head of U.S. Space Command, has seen orbital threats evolve rapidly during his 37-year military career. In an exclusive chat with Axios, he said the command needs more investment and capabilities.

• The ongoing war in Iran has revealed that U.S. adversaries are targeting ground-based radar systems to gain an advantage. Whiting said the same logic now applies to the nation's military assets orbiting Earth.

CEO confidence in the U.S. economy sank into negative territory earlier this month, finds a survey out Thursday morning from the Conference Board.

Why it matters: Business leaders are mind-melding with most consumers, whose opinions on the economy are now lower than during the pandemic.

• Such sour sentiment is shaping up as a key issue in the midterms just weeks away.

U.S. business leaders are coalescing around a belief in AI as a force for job creation instead of destruction, according to a new KPMG survey.

Why it matters: The looming uncertainty over the economic impact of AI remains a topic of significant concern for workers.

Zoom in: 89% of U.S. CEOs expect to increase their headcount over the next three years as AI creates more business opportunities, the survey found.

• 86% said they're "redesigning roles, career paths and team structure to reflect human-AI collaboration," while 79% are "hiring new talent with AI and tech capabilities."
• The survey of 400 U.S. CEOs took place from Aug. 11-Sept. 21.

What they're saying: KPMG U.S. CEO Tim Walsh says the path to AI-powered job growth is "directionally very clear," but he warned that serious risks loom — including the threat of cybersecurity attacks.

• "As we put more AI into our processes and platforms, the capacity opens up," Walsh tells Axios in an interview. "What you're seeing there is CEOs being really optimistic that they can actually expand their business, which is going to result in a bigger workforce for them."

Yes, but: 53% of CEOs are still planning workforce reductions in some areas, according to the survey, illustrating the complicated impact of AI on the economy.

Amid swirling chatter about the risks of AI going rogue and attacking infrastructure or critical business operations, the nervousness in the C-suite is palpable.

• 85% of CEOs anticipate cybersecurity threats "will impact their organization's prosperity over the next three years," the survey found.
• CEOs are bracing for something "damaging in a very significant way," Walsh says. "There is an acknowledgement out there — and it's pretty widespread — that you know that something's going to happen."

But that risk also brings an opportunity of a kind as businesses shore up their defenses.

• 48% of CEOs plan to boost their spending on cybersecurity over the next three years.

The bottom line: CEOs are grappling with the complex interplay of opportunities and threats that comes with the arrival of dynamic AI systems.

AI companies for years have promised that smarter models would be worth the staggering cost to build them. Anthropic on Wednesday made that case in cash.

• The company presented eye-popping financials to investors, saying it was cash flow positive in the third quarter, with revenue surging nearly 50% to $16.8 billion compared with the April-to-June period.

Why it matters: As Wall Street broadly spent the day fearing an AI bubble, Anthropic offered what investors have been desperate to see: evidence that frontier AI can be a sustainable business.

Bill Gates is gearing up to dramatically expand his AI safety push, personally leaning on business leaders and considering a major deployment of his resources, sources tell Axios.

Why it matters: The formidable, sharp-elbowed Bill Gates who built Microsoft is back, and he's directing his competitive fire toward what he has come to see as one of the most important causes of his lifetime.

• "I can reach CEOs on this better than you can," Gates told one person he consulted on AI safety, showing an eagerness for combat that associates say is a return to "OG" form.

The Federal Trade Commission on Wednesday sent civil subpoenas to AI giants seeking documents about safety incidents that have spiraled into an industry crisis.

• The FTC sought documents from Anthropic and OpenAI in a probe focused on potential consumer protection violations, a person familiar told Axios.