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

For Cameron Pappas, owner of Norton Florist in Birmingham, Alabama, the AI ​​boom is a long way off.

While companies like Nvidia, Alphabet And broadcom Having driven the stock market to new highs and strengthened GDP, Pappas is experiencing what is happening in the real economy, far from Wall Street and Silicon Valley.

Small businesses like Norton’s and companies of all sizes in retail, construction and hospitality are struggling with higher costs brought on by the Trump administration’s sweeping tariffs and pessimistic consumers reducing their spending.

“We kept a close eye on all of our expenses,” Pappas, 36, said in an interview with CNBC.

Norton generated $4 million in revenue last year by selling flowers, plants and gifts to locals. To avoid price increases that might cause customers to flee, Pappas was forced to get creative by overhauling some of his designs.

“If you have 25 stems in a bouquet and you reduce it by three to four stems, then you can keep the price the same,” Pappas said. “That forced us to really focus on that and make sure we priced things the best way possible.”

Pappas’ story and many others like it are masked in macro data with the power of artificial intelligence. In the first half of the year, AI-related capital expenditures contributed 1.1% to GDP growth. September report from JPMorgan Chase. This spending has surpassed the U.S. consumer “as the engine of expansion,” the report said.

Total U.S. GDP rose 3.8 percent annually in the second quarter of 2025 after falling 0.5 percent in the first quarter, the Commerce Department said.

US manufacturing spending contractual For seven months straight, according to the Institute for Supply Management. And construction expenses It remains flat due to high interest rates and rising costs. Cushman & Wakefield said: report This month, it was announced that the total project cost for construction in the fourth quarter will increase by 4.6% compared to the previous year due to taxes on construction materials.

A similar disconnect is seen between AI and everyone else in the stock market.

Eight tech companies are valued at $1 trillion or more, and to varying degrees they are all tied to AI. These companies — Nvidia, Microsoft, Applealphabet, Amazon, Meta, Tesla’s and Broadcom make up about 37% of the S&P 500. With a market cap of $4.5 trillion, Nvidia alone accounts for more than 7% of the benchmark.

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

That explains why the S&P 500 and Nasdaq hit record highs on Friday, up 15% and 20%, respectively, as the government shutdown continues to create economic anxiety.

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

The latest troubling sign in the consumer market came on Thursday. Aim He said 1,800 corporate workers would be laid off; this was the retailer’s first major round of layoffs in a decade. Target shares are down 30% this year.

“I think the message is true that AI economics is kind of driving up GDP numbers,” New York University Stern School of Business professor Arun Sundararajan told CNBC in an interview. “There may or may not be weakness in the rest of the economy, but there may be more moderate growth.”

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

Last month, Nvidia announced it would invest $100 billion in OpenAI, which is valued at $500 billion. The capital will help OpenAI deploy at least 10 gigawatts of Nvidia systems; This is roughly equivalent to the annual power consumption of 8 million US households.

shares Advanced Micro Devices It has doubled this year and jumped more than 20% earlier this month after the chipmaker announced a deal with OpenAI; Oracle, on the other hand, has been on a tear lately due to its ties to OpenAI and broader infrastructure buildout.

“Are we inflating the economy now, thus setting ourselves up for a future crash?” Sundararajan said. He added that he doesn’t see signs that demand for AI infrastructure will slow down anytime soon.

When it comes to local businesses, most people know about the AI ​​gold rush only from news headlines. One in four small business owners are stuck in “survival mode” as they struggle with challenges like rising costs and tariffs, according to a report released in September KeyBank Survey. This is a segment of the economy that routinely accounts for around 40% of the country’s GDP.

Pappas’ flower shop was founded in 1921 and was purchased by her father in 2002. The business has survived the Great Depression, World War II and the Covid pandemic. Pappas said his father, who died in 2022, reminded him that these were “just another season” for Norton and that such challenges came with the territory.

But Trump’s tariffs created a whole new set of restrictions; Approximately 80 percent of cut flowers in the United States are imported from countries such as Colombia and Ecuador. US Department of Agriculture.

There’s no way for Norton’s to avoid higher import costs, but Pappas said it has started sourcing some flowers directly from South American growers, which saves money instead of turning to distributors who charge extra.

Pappas said this is part of a “tariff price management” effort.

Trump’s tariffs will cost global businesses more than $1.2 trillion this year, according to S&P Global, with most of those costs being passed on to consumers.

Consumer sentiment is especially important as the holiday season quickly approaches. The picture is bleak.

A majority (57%) of U.S. consumers responding to Deloitte’s survey released this month said they expect the economy to weaken next year, up from 30% the previous year. His It’s the most negative outlook since the consultancy started tracking sentiment in 1997.

In the survey, Generation Z consumers aged between 18 and 28 said they planned to spend an average of 34% less this holiday season compared to last year. Millennials, ages 29 to 44, said they expect to spend an average of 13% less this holiday season.

Additionally, seasonal hiring in retail is expected to drop to its lowest level since the 2009 recession, according to a September report from job placement firm Challenger, Gray & Christmas.

The firm released another report earlier this month showing new hires in the U.S. were just under 205,000 so far this year; This figure is a 58% decrease compared to the same period last year.

Starbucks In September, it announced a $1 billion restructuring plan that included closing many stores in North America. Nearly 900 non-retail employees were laid off as part of the plan, and the company laid off another 1,100 corporate employees earlier this year.

Starbucks shares are down about 6% this year.

shares Wyndham Hotels and Resorts The decline came after the hotel chain posted disappointing third-quarter results on Thursday. CEO Geoff Ballotti notes “challenging macro backdrop” to company earnings release. The stock is down nearly 25% year to date.

Even in the parts of the tech industry that have benefited most from the AI ​​boom, companies are making layoffs. Microsoft announced plans to cut nearly 9,000 jobs in July; The company attributed this in part to reducing management layers. sales force is now one of the few tech companies to announce layoffs, saying artificial intelligence can get the job done.

But most businesses using AI for efficiency won’t find them right away, said Hatim Rahman, an associate professor at Northwestern University’s Kellogg School of Business who specializes in artificial intelligence. So companies can’t rely on technology to offset declining revenues, and “the road to the future will be bumpy,” Rahman said.

“AI is not a plug-and-play solution,” Rahman said. “For many organizations, people, processes, culture and tools will need to be engaged to reap the benefits. And overall it will take time.”

WRISTWATCH: The AI ​​boom is driving the stock market higher but may be masking a weak economy