Over 100 percent of fourth quarter GDP was AI related. What happened?
The BEA reports Real gross domestic product (GDP) increased at an annual rate of 0.7 percent in the fourth quarter of 2025 down from the advance estimate of 1.4 percent.
AI-Related Spending Change in Billions
- IP Equipment: 51.5 up from initial estimate of 50.4
- Software: 8.1 down from initial estimate of 15.0
- IP R&D: 14.5 down from initial estimate of 15.6
Net change -6.9 billion all in software as equipment and R&D offset.
Real Private Fixed Investment
Real Private Fixed Investment Spending Change in Billions
- Private Fixed Investment: 17.9 down from 27.9
- Private Nonresidential Fixed Investment: 28.5 down from 33.8
- Private Residential Fixed Investment: -1.0 up from -2.9
- IP Equipment, IP Software, R&D: 74.1 down from 81.1
Percentage Point Contributions to GDP
Nonresidential Contribution to GDP
- 2025 Q1: 1.24 Percentage Points
- 2025 Q2: 0.98 Percentage Points
- 2025 Q3: 0.44 Percentage Points
- 2025 Q4: 0.31 Percentage Points
Nonresidential AI Contribution to GDP
- 2025 Q1: 1.24 * 99.6 / 81.0 = 1.52 Percentage Points
- 2025 Q2: 0.98 * 79.7 / 63.9 = 1.22 Percentage Points
- 2025 Q3: 0.44 * 34.6 / 28.5 = 0.53 Percentage Points
- 2025 Q4: 0.31 * 74.1 / 28.5 = 0.81 Percentage Points Down from 1.22 in Advance Estimate
The 2025 AI total contribution is 1.52 + 1.22 + 0.53 + 0.81 = 4.08 percentage points.
For the fourth quarter, AI contributed 0.81 percentage points of 0.70 percent. That’s more than the total.
IP equipment, not IP software or R&D, was the big boost. See lead chart.
However, the government shutdown subtracted 1.03 from GDP. Factor that out and the AI contribution was 0.81 PP of 1.73 percent.
Ignoring the government shutdown impact, AI contributed about half (46.8 percent), of the fourth-quarter gain.
For further discussion of huge negative revisions, very little of which was government spending, please see Fourth-Quarter GDP Estimate Cut in Half. What Happened?
Key Revisions
- PCE Services: -0.34 PP
- Government: -0.13 PP
- Nonresidential Investment: -0.23 PP
- Exports: -0.35 PP
- CIPI: +0.07 PP
- PCE Goods: +0.08 PP
This was a nasty set of revisions, but AI spending was largely unchanged.
PCE services and AI are the key positive drivers.
We are so unthinkably screwed with this bubble that I honestly think the exit plan guy has a point. Anyone selling a houseboat by chance?
@Mish…..
Morgan Stanley starting to look like the new Bear Sterns circa 2008, they are halting redemption on some of their private equity. This is on top of Blue Owl, Blackstone, Blackrock, Cliffwater, etc. There are new daily, would be good to get your opinion on this matter.
Ironically, these same firms were pushing for “private equity” access inside 401ks. Looks like they are trying to dump this bad loan stuff into 401ks the way wall street sold bad debt to banks all over the world. It’s getting harder and harder to find new suckers.
The kids don’t have anything left to steal.
Yeah AI!
They’ll be spending more to power the data centers… most of them run on fossil fuel.
Another favor from Trumpstien.
Drain the reserves dry!
Were you not getting enough attention? That’s too bad. You’re a very good boy, and everyone loves you.
The Iran energy shock is going to make AI business models fall apart.
I don’t know… they weren’t viable to begin with. They can probably make the system respond a bit slower to all the people using it for free, and shut some stuff off.
Stupid Things are Possible, in America!
One aspect of the Iran war that doesn’t seem to get much mention is that due to the shut down of LNG coming from the Persian Gulf, there is now a developing shortage of helium. (Helium is obatined as the gas which remains on top of the liquified natural gas). Helium is critical in EUV lithography which is used to produce AI chips. AI chip makers do keep helium stockpiles of maybe 3-6 months but if this situation goes on for a couple of months there is a potential for a helium shortage that could curtail AI CapEx simply because chip production will grind down.
Are AI Tech Bros eligible for war criminal status?