This blog piece translates Bank of America’s forward-looking take on the U.S. economy into something a bit more approachable for researchers, investors, and policymakers. It spotlights two main engines of growth—strong consumer spending and a wave of AI-driven capital expenditures—and digs into how geopolitical tensions in Iran could threaten both.
The post also ties these trends to real-world data on GDP, capex, and inflation. It’s meant as a quick, SEO-friendly snapshot of what might matter most in 2025–26.
Two engines of growth powering the U.S. economy
Bank of America’s outlook zeroes in on two big drivers: steady consumer demand and a hefty, tech-driven capital expenditure cycle tied to artificial intelligence. Recent BEA and Fed data back this up, showing AI-related investments making a real impact on growth, alongside strong service-based spending that’s keeping GDP on the rise.
With these two forces in play, the economy could see stronger expansion—even as inflation and policy questions stick around. There’s a lot going on behind the scenes: big tech spending, productivity gains from AI, and the way consumer spending interacts with services like health care.
All these pieces help explain why the 2025–26 cycle might feel different from earlier tech booms. AI investments could reshape productivity in ways that go beyond just the initial spending.
AI capital expenditures: scale, drivers, and potential impact
Major tech giants—Amazon, Microsoft, Meta, Alphabet, and Oracle—are throwing near-trillion-dollar sums at data centers, AI hardware, and infrastructure. For 2026, estimates for AI capex run from $725 billion to $800 billion, which really shows just how massive this transformation is.
Analysts like David Sacks suggest that AI capex might lift GDP growth by about 2.5% in 2026 and could even push it past 3% in 2027, as the payoff from AI investment spreads through different industries. The Federal Reserve Bank of St. Louis points out that AI investments are shaping up to be a big deal for real GDP growth in 2025, outpacing what we saw during the dot-com boom.
Looking at the numbers, BEA data shows that in Q1 2026, GDP grew at a 2% annual rate. Information processing equipment contributed 0.83 percentage points, and software added another 0.51 points to that growth.
These contributions highlight the broader impact of the AI cycle, suggesting a widespread productivity boost across the economy.
Consumer spending: resilience amid inflation
Consumer demand is still a key pillar, with total spending rising at the fastest pace since early 2023. Even if you take out energy, spending keeps climbing.
In Q1, consumers added about 1.08 percentage points to GDP growth. Households are still fueling the expansion, despite ongoing price pressures.
Services have been the main driver of demand, with healthcare playing a big part. Inflation in some areas is making things tricky for the Fed, complicating policy decisions while households keep spending and service activity stays high.
Steady incomes and services inflation have helped keep domestic demand strong, at least for now, even as uncertainty lingers.
Geopolitical risk: the Iran conflict as a wildcard
Bank of America warns that conflict in Iran could throw a wrench into both growth pillars by disrupting energy markets and driving up energy and commodity prices. A tighter energy supply might create bottlenecks that slow AI deployment and raise costs for data centers, which could cool off AI capex in the short run.
At the same time, higher energy costs could eat into consumer purchasing power and weaken demand in other sectors. Analysts worry that the current resilience in consumer spending could be shakier than it looks. It’s a bit like Wile E. Coyote—everything’s fine until the ground suddenly gives way.
If there’s a geopolitical shock, a tighter energy channel or unanchored inflation expectations could lead to a sharper slowdown. The main scenario still calls for growth and strong AI investment, but the Iran situation looms as a real downside risk for U.S. expansion.
Strategic implications for policymakers, investors, and researchers
AI capex and consumer demand are so tightly linked that stakeholders really need to stay on their toes. It’s smart to prepare for different scenarios and keep risk management sharp.
- Keep an eye on energy markets and input costs, since these affect both AI deployment and what consumers pay.
- Watch how fast AI hardware and software prices change, pay attention to supplier relationships, and track how mega-tech firms spend on capital.
- Factor in the risks of energy-driven inflation when making macroeconomic forecasts and policy decisions. No one wants to be caught off guard by unexpected inflation spikes.
- Back up resilience in the services sector. Healthcare, for example, seems pretty central to steady consumer demand right now.
- Shape policies that help AI continue to boost productivity, but don’t forget about financial stability and keeping supply chains strong.
Bank of America expects a 2025–26 expansion, mainly fueled by AI-driven productivity and healthy consumer spending. But the Iran conflict looms as a big potential risk. If you’re a researcher tracking macro trends or an investor after risk-adjusted opportunities, you really can’t ignore AI capex, consumer demand shifts, or the latest geopolitical twists. They’re going to play a huge part in whatever comes next for U.S. growth.
Here is the source article for this story: 2 things are driving US economic growth and the Iran war threatens both