AI spending is boosting the economy, many businesses in survival mode

For Cameron Pappas, owner of Norton’s Flower Shop in Birmingham, Alabama, the AI ​​boom is a world away.

While you love companies Nvidia, alphabet and Broadcom As the stock market pushes to new highs and GDP boosts, Pappas witnesses what’s happening in the real economy, an economy far removed from Wall Street and Silicon Valley.

Small businesses like Norton, and companies of all sizes in retail, construction and hospitality, are suffering from rising costs caused by the Trump administration’s sweeping tariffs, and as pessimistic consumers cut back on their spending.

“We keep an eagle eye on all our costs,” Pappas, 36, told CNBC in an interview.

Norton generated $4 million in revenue last year, selling flowers, plants and gifts to local residents. To avoid raising prices, which might cause customers to flee, Pappas had to get creative and rework some of his designs.

“If a bouquet has 25 stems, if you reduce that by three to four stems, you will be able to keep the price the same,” Pappas said. “It’s really forced us to focus on that and make sure we’re pricing things the best we can.”

Pappas’ story and many like it are hidden in aggregate data thanks to the power of artificial intelligence. In the first half of the year, capital expenditures related to artificial intelligence contributed 1.1% of GDP growth, according to Reuters. September report from JPMorgan Chase. This spending has overtaken the US consumer “as a driver of expansion,” the report said.

The Department of Commerce said that the US gross domestic product increased at an annual rate of 3.8% during the second quarter of 2025 after declining by 0.5% in the first quarter.

Manufacturing spending has risen in the United States Contracting For seven consecutive months, according to the Institute for Supply Management. and Construction spending It was flat to low, due to rising interest rates and rising costs. Cushman and Wakefield said in a a report This month, overall project costs for construction in the fourth quarter will rise 4.6% from a year earlier due to tariffs on construction materials.

The stock market shows a similar disconnect between AI and everyone else.

Eight technology companies are estimated to be worth $1 trillion or more, to varying degrees, all related to artificial intelligence. Those companies – Nvidia, Microsoft, applealphabet, Amazon, dead, Tesla and Broadcom – make up about 37% of the S&P 500. Nvidia, with a market cap of $4.5 trillion, represents more than 7% of the index’s value by itself.

Investors are giddy about the huge investments they are seeing in AI infrastructure. Broadcom shares are up more than 50% this year after doubling in each of the previous two years, while Nvidia and Alphabet are up nearly 40% in 2025.

This explains why the S&P 500 and Nasdaq rose 15% and 20%, respectively, to record levels on Friday, even as the government shutdown continues to cause economic anxiety.

Meanwhile, the S&P 500 subgroups that include consumer discretionary companies and consumer staples companies have increased less than 5% year to date.

The latest worrying sign in the consumer market came on Thursday when goal He said that to cut 1,800 corporate jobs – the retailer’s first major round of layoffs in a decade. Target shares are down 30% this year.

“I think the message that the AI ​​economy is driving up GDP numbers is right,” Arun Sundararajan, a professor at New York University’s Stern School of Business, said in an interview with CNBC. “There may be weakness in the rest of the economy, or not weakness, but there may be more modest growth.”

Investors will hear all about AI in the coming days, the busiest quarter for tech earnings, and will be listening closely for additional guidance on capital expenditures. Microsoft and Alphabet report Meta on Wednesday, followed by Apple and Amazon on Thursday.

Last month, NVIDIA announced a An investment of 100 billion dollars At OpenAI, a $500 billion startup. The capital will help OpenAI deploy at least 10 gigawatts of Nvidia systems, roughly equivalent to the annual energy consumption of 8 million American households.

shares Advanced micro devices It has doubled this year and rose more than 20% earlier this month after the chipmaker announced a Working with OpenAIwhile Oracle has been on a tear lately over its relationships with OpenAI and its broader infrastructure buildout.

“Are we inflating the economy now, thereby setting ourselves up for a future collapse?” Sundararajan said. He added that he sees no signs that demand for AI infrastructure will slow down any time soon.

When it comes to local businesses, most only know about the AI ​​gold rush through news headlines. One in four small business owners are stuck in “survival mode” as they face challenges such as rising costs and tariffs, according to a report released in September. Scan your bank. It is a part of the economy that routinely accounts for about 40% of the country’s GDP.

Pappas Flower Shop was founded in 1921, and his father bought it in 2002. The company has weathered the Great Depression, World War II and the Covid pandemic. Pappas said his father, who died in 2022, reminded him that these periods were “just another season” for Norton, and that such challenges come with the territory.

But Trump’s tariffs have created a whole new set of restrictions, as nearly 80% of all cut flowers in the United States are imported from countries like Colombia and Ecuador, according to a World Trade Organization report. US Department of Agriculture.

There is no way for Norton to avoid high import costs, but Pappas said he has begun buying some flowers directly from South American growers, saving him money versus going through distributors who charge extra.

Pappas said this is part of his efforts to “manage tariff rates.”

Trump’s tariffs will cost global companies even more $1.2 trillion This year, most of those costs are being passed on to consumers, according to S&P Global.

With the holiday season quickly approaching, consumer sentiment is especially important. The picture is bleak.

The majority of American consumers, 57%, responded A Deloitte survey Published this month, the bank said they expect the economy to weaken next year, up from 30% last year. that it The most negative forecast since the consulting firm began tracking sentiment in 1997.

Gen Z consumers, defined by the survey as ages 18 to 28, said they plan to spend an average of 34% less this holiday season compared to last year. Millennials, ages 29 to 44, said they expect to spend 13% less on average this holiday season.

In addition, seasonal employment in the retail sector is expected to decline to record levels Lowest level Since the 2009 recession, according to a September report from staffing firm Challenger, Gray & Christmas.

The company launched Another report Earlier this month it showed that new hiring in the US totaled just under 205,000 so far this year, 58% lower than the same period last year.

Starbucks Announced $1 billion Restructuring plan In September, which includes the closure of several stores in North America. About 900 non-retail employees were laid off as part of the plan, and the company laid off another employee 1,100 company workers Earlier this year.

Starbucks shares are down about 6% this year.

shares Wyndham Hotels & Resorts It fell on Thursday after the hotel chain released disappointing third-quarter results. CEO Jeff Pallotti cited the “challenging macro backdrop” in the company’s earnings He releases. The stock is down roughly 25% since the beginning of the year.

Even in parts of the tech industry that have benefited most from the AI ​​boom, companies have been making layoffs. Microsoft announced plans to downsize 9000 job opportunities in July, which the company attributed in part to a reduction in management layers. Sales force It is one of a number of technology companies to announce layoffs, saying artificial intelligence can now handle the work.

But Hatem Rahman, an associate professor specializing in artificial intelligence at Northwestern University’s Kellogg School of Management, said that most companies using AI to achieve efficiency won’t find it right away. Therefore, companies cannot rely on technology to cope with declining revenues. “The road ahead will be bumpy,” Rahman said.

“AI is not a plug-and-play solution,” Rahman said. “For many organizations, it will involve getting to grips with people, processes, culture and tools to be able to reap the benefits. Overall, it will take time.”

He watches: While the AI ​​boom is lifting the stock market, it may be hiding a weaker economy