The Morning Download: AI Flywheel Revs the Economy

Good morning. Discussion of the massive investments pouring into AI often focus on costs and risks, and for good reason. There is new evidence, however, that all of that investment is starting to expand beyond the financial markets and boost the real economy. The Commerce Department said yesterday that U.S. economic growth picked up in the first quarter as businesses invested heavily in AI.

Gross domestic product rose at a seasonally and inflation adjusted 2% annual rate in the first quarter. While the overall result was short of the 2.2% that economists expected for the January-to-March period, business investment was strong. More highlights from the WSJ:

The first quarter saw a strong increase in business spending on categories tied closely to AI, like equipment and intellectual property products, underscoring just how much AI has become an engine for the nation’s economy. Overall business investment increased at a 10.4% annual rate in the quarter, the strongest growth in nearly three years.

Business investment was particularly strong given that so much of what goes into computing equipment is imported. “Even after accounting for the fact that most computer equipment is imported, AI investment seems like it accounted for about half of the overall GDP growth in the first quarter,” Oliver Allen, an economist at Pantheon Macroeconomics, told the WSJ. It was the consumer who pulled back.

The question now is whether the boom in AI investment is sustainable. Even if business investment in AI-related plants and equipment slows down or reaches a plateau, the new infrastructure should provide a foundation for future economic growth and productivity gains.

That’s where company leadership comes into play at the economic level, given that productivity comes down to how CEOs and other leaders figure out how to structure their organizations to make good use of technology.

Let us know how that process is working at your company.

There’s a risk that the AI flywheel won’t keep spinning as expected, but so far, the evidence suggests that it is speeding up, not slowing down. Key vendors are maintaining pricing power even as demand rises. More below.

Prices of Nvidia's B300 server at $1 million in China on U.S. curbs. Strong demand for AI computing equipment in China has nearly doubled prices for Nvidia's B300 ​servers to about 7 million yuan ($1 million) each, sources told Reuters, as a crackdown on chip smuggling dries up ‌black-market supply.

AI has made memory chips one of the world’s most profitable products. While fears grow over whether AI services will eventually reap big profits, an epic windfall is flowing to the companies involved in the build-out of related infrastructure, WSJ reports. Since the start of this year, shares of Samsung have risen by 72%. SK Hynix’s shares are up 90% and Micron has gained 65%.

Apple sees sales surge, powered by iPhone 17. Apple’s strong iPhone sales helped propel it into a strong quarter with sales of $111.2 billion, results that exceeded Wall Street expectations.

On its Thursday earnings call, Apple touted strong performance in device sales, despite supply constraints that continue to dog the industry. CEO Tim Cook warned that memory costs will be “significantly higher” for the company beyond the June quarter and that Apple is looking at a range of options to offset the impact to its business.

One bright spot Cook touted in Apple’s AI story is the amount of developers choosing to build and deploy AI agents on Macs. 

A massive wave of developer excitement earlier this year around autonomous desktop agents, popularized by OpenClaw, also spurred significant demand for Mac minis.

“Mac mini and Mac Studio are great platforms for agentic tools,” Cook said on the call. He added that after the unexpected demand uptick it could take several months to reach supply demand balance on those products.

Mark Zuckerberg blames Meta’s slower sales on war and blames layoffs on AI infrastructure costs. In a Thursday meeting Zuckerberg addressed the market’s negative reaction to its first-quarter results in a companywide meeting. He said there was a “trajectory change” in Meta’s ad business after the start of the U.S. war in Iran. He also attributed the company’s planned layoffs in May to a need to spend more on data centers and other AI infrastructure, according to a recording reviewed by the Wall Street Journal.

Anthropic weighs funding offers at over $900 billion valuation. The Claude maker is entertaining offers from investors that would more than double its current valuation, sources told Bloomberg. The considerations are at a very early stage and the company has yet to accept any offers.

OpenAI meets key AI computing capacity goal ahead of schedule. The ChatGPT creator has signed contracts for 10 gigawatts of AI computing capacity, it said in a blog post on Wednesday. The company had originally aimed to reach that goal by 2029, Bloomberg reports.

Elon Musk takes the stand for a third day in lawsuit against Sam Altman. Musk faced hours of cross-examination from William Savitt, an attorney for Altman and OpenAI, WSJ reports. Savitt, who has represented both Musk as well as parties that sued Musk in prior cases, sought to establish with the jury that Musk not only knew about OpenAI’s early plans to construct a for-profit entity, but also supported it and requested majority control of it.

Zoom has a ‘SWAT Team’ to stand out on ChatGPT and Gemini. Yet another new job duty has skyrocketed in importance for chief marketing officers: optimizing how their companies appear in conversations with large language models, WSJ’s CMO Journal reports. For Kimberly Storin, CMO of Zoom, that has meant working quickly to stay on top of emerging research and trying to make sure material is showing up in a way that leads users to consider Zoom

AI customer service startup Netomi raises $110 million. The funding round was led by Accenture Ventures, Reuters reports. The startup counts enterprises like United Airlines, Paramount and DraftKings among its customers, and will work with Accenture to help customers roll out improved AI service agents.

Exxon Mobil, ConocoPhillips and other oil companies had deemed Venezuela too risky for business. Now they have come back for a second look. (WSJ)

A newly expanded domestic surveillance system built to locate, track and deport people residing illegally in the U.S., allows thousands of federal agents nationwide to peruse a trove of data belonging to more than 300 million people, including citizens. (WSJ)

Republican leaders are pushing for Southern states to rapidly redraw congressional maps ahead of the midterm elections, on the heels of a Supreme Court decision that sharply curbed the use of race in crafting electoral districts. (WSJ)

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The WSJ CIO Journal Team is Steven Rosenbush, Isabelle Bousquette and Belle Lin.

The editor, Tom Loftus, can be reached at thomas.loftus@wsj.com.