CIO Insight: AI to the Rescue?

The view that artificial intelligence (AI) will boost productivity and prove transformative to the economy is one of the market narratives contributing to a sanguine backdrop for risk assets, even as soft patches in the economy become more pronounced. 
 
Research from Goldman Sachs and others suggests AI is already adding 0.1-0.3% to US gross domestic product (GDP), with more upside likely through productivity gains. While equity valuations reflect enthusiasm—especially for hyperscalers and infrastructure providers—the real test lies in corporate deployment of AI. 
 
If AI can sustainably boost GDP by 0.5-1%, weak payroll growth may be less concerning and even a necessary byproduct of adoption. Long term, lifting US trend growth from 1.5-2% to 2.5-3% would significantly improve US debt sustainability.

Next year’s supply avalanche

AI-related spending is already playing an outsized role in overall economic momentum. AI investment is set to surge from here, with Morgan Stanley estimating $3 trillion in capex from hyperscalers over the next three years—only half funded by free cash flow. That may understate the scale, in our view. The forecast also excludes massive infrastructure needs in power and grid capacity. 
  
This wave of spending implies a significant fixed income financing requirement, spanning private credit, securitized, and public issuance. While much will be off-balance-sheet and outside investment grade (IG) debt, overall US fixed income supply is poised to rise sharply, particularly when compared to recent years. Case in point: Data center securitization gross issuance for 2025 year to date has already outpaced prior years, as Figure 1 shows. Combined with persistent fiscal deficits, the success of AI and the health of the US economy appear increasingly intertwined. 

With AI already contributing to growth, our base case is that the US economy remains resilient despite shocks from tariffs and political uncertainty, though delayed effects may emerge in late 2025 or early 2026. For credit markets, this base case supports valuations in the near term, though risks are skewed to the downside. Longer term, rising fixed income supply may erode favorable supply / demand technicals. 

Figure 1: Data Center Securitization is on the Rise

Data center securitization gross issuance ($ millions)

Source: Barclays, L&G – Asset Management, America. Data as of September 2025. Numbers are estimates and likely exclude deals that are privately placed in the 4(a)(2) market. CMBS refers to commercial mortgage-backed securities. ABS refers to asset-backed security debt.

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