The rise of artificial intelligence (AI) is driving U.S. economic growth and pushing tech stocks to record highs. Companies like Nvidia, Alphabet, Microsoft, and Broadcom have seen massive gains, helping the S&P 500 and Nasdaq rise 15% and 20% this year. AI-related spending contributed 1.1% of GDP growth in the first half of 2025, according to JPMorgan Chase.
Despite these gains, many businesses are facing tough conditions. Small shops, retailers, construction companies, and hospitality firms are struggling with high costs from tariffs, supply chain issues, and cautious consumers. Norton’s Florist in Birmingham, Alabama, has adjusted its flower arrangements to avoid raising prices. Owner Cameron Pappas said, “We’ve just got an eagle eye on all of our costs.”
Manufacturing has contracted for seven months, and construction spending is flat or declining. Total project costs for construction are expected to rise 4.6% this year due to tariffs. Consumer sentiment is also weak. A Deloitte survey found that 57% of Americans expect the economy to worsen in the year ahead. Gen Z plans to spend 34% less this holiday season, while millennials plan to spend 13% less.
Even some large companies benefiting from AI are reducing staff. Microsoft plans to cut 9,000 jobs, Salesforce is relying on AI to replace some positions, and retailers like Target are laying off employees. Starbucks recently announced layoffs and store closures, while Wyndham Hotels reported disappointing results.
Experts warn that AI is not a quick fix for struggling businesses. Hatim Rahman, an AI specialist at Northwestern University, said, “The road to the future is going to be bumpy. AI is not a plug-and-play solution. Companies need time and effort to make it work effectively.”
While AI spending boosts GDP and investor returns, the broader economy tells a different story. Many businesses remain in “survival mode,” facing high costs, declining demand, and uncertain consumer spending.
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