The AI payoff is real. The timeline is the problem

The past three years, Big Tech and Wall Street have financed the artificial intelligence boom on a simple premise: build the infrastructure now, and a historic wave of corporate productivity will soon pay the tab. Within 48 hours, two of the market’s most closely watched economists, both at firms financing that buildout, challenged the premise, publishing back-to-back warnings that AI spending is outpacing its economic payoff. Neither doubts where AI is headed, only how quickly the rest of the economy will get there.

At Goldman Sachs, chief economist Jan Hatzius estimates that the growth impulse from the AI buildout will peak in late 2026 or early 2027. An expansion meant to hand off smoothly from historic capital spending to economy-wide productivity gains is instead hitting an air pocket. The initial spending surge is climbing but losing steam as AI capex growth as a share of GDP slows, the boost from last year’s tax depreciation incentives fades, and the stock-market wealth effect cools. Goldman still believes in the long-term payoff, but getting there requires wading through near-term labor-market disruption that will weigh on growth before lifting it.

Meanwhile, the productivity handoff that was supposed to cushion the slowdown is absent from the data. Days before the Goldman note, Apollo chief economist Torsten Slok showed that while profit margins and revenue per worker are rising among the Magnificent Seven, they remain flat across the remaining 493 companies in the S&P 500. Outside the tech sector, mainstream companies are coming to view token spending “not as a source of growth but as a cost center that weighs on margins.” As Slok puts it, the fate of the AI boom “will be decided in the S&P 493, not the Mag 7”—and right now, the 493 are barely moving.

The opening of Charles Dickens’ 1859 historical novel, “A Tale of Two Cities,” labelled the French Revolution “the best of times and the worst of times.” As we detail in our upcoming book When Machines Act: The Promise and Peril of our Agentic AI Future (MIT Press/Penguin Random House), there may be a path of harmony between these contrasting views, with vital implications for investors, managers, and public officials.

The view from the corner office

Step out of the research department and into the boardroom,........

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