As the price of almost everything has risen and American workers’ wages have virtually stagnated, politicians like President Donald Trump have tried to reassure us that the economy is “doing great” and the stock market is booming. “Record high, record high, record high,” Trump said at an event earlier this month in Florida.
- The world’s largest company, Nvidia, is driving the entire US stock market’s growth to an extent that no other company has in recent memory.
- If it fails, there are fears it could take down the entire US economy, and there are signs that could be the case.
- The shock waves from Nvidia’s downfall would be devastating and far-reaching (from tech startups and cloud computing to construction, real estate development and steel) due to the AI supply chain.
Still, despite what has been a good year for the stock market, it’s hard to find a day when a podcaster, influencer, or economist doesn’t warn that the AI boom driving the economy could be a bubble, one that’s about to burst.
The company that is driving the positive movement on Wall Street is Nvidia, the most valuable company on the planet. And that’s because the recent spate of data centers popping up across the country are filled with Nvidia graphics processing units, or chips.
So why did the health of this single company become an outsized force in the economy? And why does his health scare so many people? Today, explained Co-host Noel King asked economic commentator, educator and author of In this economy? Kyla Scanlon.
Below is an excerpt from their conversation, edited for length and clarity. There’s a lot more in the full podcast, so give it a listen Today, explained wherever you get podcasts, including Apple Podcasts, Pandora, and Spotify.
The markets have been a rollercoaster lately. And when you ask why, the answer generally speaking is thanks to Nvidia. Why is the world holding its breath for Nvidia? What is the concern here?
Well, Nvidia is somewhat emblematic of the whole AI development. Therefore, every technology company from Microsoft to Meta to Amazon has based all its future plans on Nvidia. (If you hear anything about “circular financing,” that’s what it means.)
Nvidia is so involved in the overall market (it’s such a big part of AI) that if they sneeze, everyone else catches a cold. And that’s why the markets are a little nervous, because the whole story of AI, [and] Therefore, the entire stock market, [and] Therefore, the entire economy depends on Nvidia maintaining quite impossible growth metrics.
It really seems like this shouldn’t happen: that there shouldn’t be a company that’s big enough, important enough to shake global markets.
What exactly happened here?
Nvidia became so big in such a short time that the American economy decided to design itself around AI. You know, 40% of GDP growth comes from AI development. And so Nvidia, because of that concentration, because of the bet that the American economy is making on AI, they have become a kind of macro variable.
You can think of your earnings reports like you would an employment report we get from the BLS or an inflation report we receive. Earnings day for Nvidia is a test of the AI narrative and therefore a test of the American economy. And that’s simply because we’ve spent a lot of money on data centers. [capital expenditure] – so much money in these chips and these companies are continually growing. So that’s what happened.
Are there other companies that exert this type of influence? Do Walmart or Chevron have that kind of power?
No. Nvidia is a very important part of the S&P 500; It is almost 8% of the entire index. I think it has contributed a fifth of the index’s total gain this year.
Walmart isn’t that big a percentage of the S&P 500, and it hasn’t driven as much growth, as much earnings power, as much investment. Nvidia is really special in that sense. …
The S&P 500 has always been fairly high. There have always been companies that are more important than others. But without Nvidia, the story of 2024, 2025 would look like economic stagnation.
You know the old saying: the stock market is not the economy. Is Nvidia simply playing this huge role in the markets or does it represent a huge portion of other parts of the economy? If Nvidia stumbles, will a million Americans lose their jobs?
I don’t think it’s something that extreme. The stock market is definitely not the economy, but they are increasingly intertwined because the AI narrative is so important. If Nvidia implodes, it wouldn’t be that people like doctors, bus drivers, and construction workers would suddenly be out of work.
The only thing that would happen is that the stock market would crash and the economic growth narrative would collapse. And you could see side effects. Maybe the construction company decides to start laying people off because Nvidia leads to some kind of recession if they end up imploding. But it wouldn’t be a direct correlation, no.
Everyone is wondering, “Are we in an AI bubble?” And lately I’ve seen people suggesting that Nvidia will be one of the big signs that will tell us if it’s going to explode.
What do we know about the threat of an AI bubble and where Nvidia is playing?
If I had a nickel for every time someone talked about the AI bubble, you know, I could invest in Nvidia. But I think the way you can think about it is: Nvidia is the whole AI thesis.
If Nvidia suddenly stumbles, and there is growing concern that it will, because its growth trajectory is quite impressive and quite unsustainable. because is so impressive: companies could stop spending tens of billions of dollars on data centers. Cloud providers would slow expansion and startups built around “AI is the future” would face funding issues. The stock market would lose double-digit percentages. Regional construction booms linked to data centers would slow. Places like Iowa, where they have helped revive local economies to some extent — from steel plants to electrical workers to construction workers to real estate developers — would feel the impact.
And then, of course, if the stock market falls, ultimately the overall economy suffers, because then the Federal Reserve would have to come up with some kind of emergency funding plan. President Trump may have to come up with a fiscal policy plan to prevent the fund from bursting and a massive blowout.
The worry is if Nvidia leaves [down]The entire AI supply chain is shaky. And because the economy and the stock market are so involved in it, it could really have other repercussions.
At the end of the day, I wonder what you think a company like Nvidia means for the American economy. It’s a beast. It occupies a large part of the market.
What position are we in here having such an influential company?
Well, Greg Ip of the Wall Street Journal wrote a great article calling Nvidia the joyless technological revolution. And I think that’s a very good way to think about it. AI trading, if it works, [then] The benefits will go to a few select people, right? So companies like Nvidia – people will invest a little bit in Nvidia. Companies like Open AI, companies like Anthropic, will really benefit if all of this ends up working.
But the losses caused by AI are socialized. So if suddenly data centers go down, if AI trading completely blows up, people’s retirement accounts are really going to suffer, because the S&P 500 is what most people invest in for their retirement account, and Nvidia is a big part of the S&P 500, as we discussed. And then if the data centers don’t work, there will be a lot of local communities that have pinned their hopes on these things and dreamed that they will work and add jobs. And that’s the problem with AI and Nvidia taking up such a large part of the economy.
That’s why Greg calls it the joyless technological revolution, because a lot of people don’t like this. I think that’s a really important thing to consider. I think the statistic was that 6 out of 10 Americans essentially don’t want all of this. They don’t like what AI companies promise, especially when CEOs come and say they’re going to take people’s jobs.
Then there is also a graph of the [Financial Times] I think that sums up this broad conversation that we continue to have very well too, where it’s like: AI could be the end of scarcity, which means it solves everything; the end of humanity, that is, killing everyone; or it could add 0.2 percentage points to GDP. And it’s what the Internet was like to a certain extent.
It seems like there’s a chance that this inequality problem we’ve been facing for about a generation could really be exacerbated.
The frustrating thing about the AI conversation is that everyone is talking about it, but there is still no political solution. We have no idea how we are going to retrain people. We don’t know if we need some form of UBI, universal basic income, to help people during a time of transition.
We have so many lessons we could learn from things like what happened in the Rust Belt, when manufacturing moved offshore and how that devastated local communities. We could see something like this happening with AI over time.