AI economy: Why Nvidia, the stock market, and the US economy are so intertwined.

The price has almost everything increasedand the wages of American workers have been anything but stalledPoliticians like President Donald Trump have tried to reassure us by telling us the economy is “it's going great” and that the stock market is booming. “Record high, record high, record high,” Trump said at an event in Florida earlier this month.

Still, despite everything that has been Good year for the stock marketit's hard to find a day when a Podcaster, Influencersor economist is not a warning about the AI ​​boom that is driving the economy could be a bubble – one who is about to do so burst.

The company driving the positive movement on Wall Street is Nvidia, the most valuable company in the world. And that's because recent data centers popping up across the country are filled with graphics processors or chips from Nvidia.

Why did the health of this single company become an outsized force in the economy? And why does his health scare so many people? Explained today Co-host Noel King asked the economic commentator, educator and author of In this economy? Kyla Scanlon.

Below is an excerpt from their conversation, edited for length and clarity. There's a lot more in the full podcast, so listen Explained today Wherever you get podcasts, including Apple Podcasts, PandoraAnd Spotify.

The markets have been a roller coaster ride lately. And if you ask why, the answer is broadly Nvidia. Why is the world holding its breath over Nvidia? What's the concern here?

Well, Nvidia is, in a sense, a symbol of the entire AI expansion. That's why every single tech company, from Microsoft to Meta to Amazon, has aligned all of their future plans with Nvidia. (If you know anything about “Circular financingThat's what that means.)

Nvidia is just so embedded in the broader market – it's such a big part of AI – that if everyone else sneezes, they'll catch a cold. And so the markets are a little nervous because the whole AI story, [and] i.e. the entire stock market, [and] Therefore, the entire economy depends on Nvidia meeting near-impossible growth metrics.

It really feels like this shouldn't be happening – that there shouldn't be a single company big enough and important enough to make world markets tremble.

What exactly happened here?

Nvidia became so big so quickly and the US economy decided to pivot towards AI. You know, 40% of GDP growth comes from AI expansion. And so because of that concentration, because of the bet that the U.S. economy is making on AI, Nvidia has become something of a macro variable.

You can think of their earnings reports like you would a jobs report that we get from the BLS or an inflation report that we get. Earnings day for Nvidia is a test for the AI ​​narrative and therefore for the US economy. And that's just because we spent money so much money on data centers [capital expenditure] – just so much money for these chips and these companies continuously expand. So that's what happened.

Are there other companies that have this kind of influence? Do Walmart or Chevron have that kind of power?

No. Nvidia is such a big part of the S&P 500; it is almost 8% of the total index. I think it contributed a fifth to the index Overall profit this year.

Walmart is not that big of a percentage of the S&P 500, and it hasn't driven as much growth, as much earnings power, as much investment. Nvidia is really special in this regard. …

The S&P 500 has always been pretty top heavy. There have always been companies that were more important than other companies. But without Nvidia, the story of 2024 and 2025 would look like economic stagnation.

You know the old saying, right: the stock market is not the economy. Does Nvidia just play this huge role in the markets or does it represent an outsized portion of other parts of the economy? If Nvidia stumbles, will a million Americans lose their jobs?

I don't think it would be anything that extreme. The stock market is definitely not the economy, but they are increasingly intertwined because the AI ​​narrative is so important. If Nvidia implodes, it wouldn't be like people who are doctors, bus drivers, and construction workers would suddenly be unemployed.
It would simply be that the stock market would collapse and the economic growth narrative would collapse. And you could see secondary effects. Maybe the construction company decides to lay people off because Nvidia will lead to some sort of recession when they eventually implode. But that wouldn't be the case a direct connectionNO.

Everyone has asked, “Are we in an AI bubble?” And lately I've seen people suggesting that Nvidia will be one of the big signs that tells us if it's going to burst.

What do we know about the risk of an AI bubble and what role Nvidia plays?

If I had a dime for every time someone talked about the AI ​​bubble, I could invest in Nvidia. But I think you can think of it this way: Nvidia is the entire AI thesis.

If Nvidia suddenly stumbles, the concern grows because their growth trajectory is quite impressive and quite unsustainable Because It's so impressive – companies could forgo spending tens of billions of dollars on data centers. Cloud providers would delay expansion and start-ups that follow the motto “AI is the future” would have financing problems. The Stock exchange would lose double-digit percentages. The regional construction boom associated with data centers would slow. Places like Iowa, where they have helped revitalize local economies to some degree – from steel mills to electrical workers to construction workers to land developers – would do so feel the shock.

And if the stock market falls, the overall economy ultimately suffers because then the Federal Reserve would have to step in somehow Emergency funding plan. President Trump may need to come up with a fiscal policy plan to avoid breaking the bottom and causing a massive explosion.

The concern is whether Nvidia will actually go [down]the entire AI supply chain begins to falter. And because the economy and the stock market are so intertwined, it could really lead to something different Effects.

Ultimately, I'm wondering what you think a company like Nvidia means to the American economy. It's a beast. It occupies a huge market share.

What situation are we in here when we have such an influential company?

Well, Greg Ip from the Wall Street Journal wrote a great article naming Nvidia the joyless tech revolution. And I think that's a really good way to think about it. AI trading, if it works, [then] The benefits will go to a few people, right? So companies like Nvidia – people will invest a little bit in Nvidia. Companies like Open AI, companies like Anthropic – they will really benefit if this all works out.

But the losses from AI are socialized. So if suddenly the data centers stop working, if AI trading completely collapses, people's retirement accounts are really going to suffer because most people invest in the S&P 500 for their retirement accounts, and Nvidia does a lot from the S&P 500 as we discussed. And then if the data centers don't work, there will be many local communities that put hope in these things and dream that they work and create jobs. And that's exactly the problem, with AI and Nvidia taking up such a large part of the economy.

That's why Greg calls it the joyless technology revolution – because a lot of people don't like it. I think this is really important. I think the statistics were 6 out of 10 AmericansI basically don't want any of this. They don't like what the AI ​​companies are promising, especially when the CEOs come out and say they're going to take people's jobs.

Then there is also a diagram from the [Financial Times] I think that sums up this broader discussion that we continue to have very well, which says: AI could either be the end of scarcity, meaning it solves everything; the end of humanity, meaning it kills everyone; Or it could increase GDP by 0.2 percentage points. And it is, to a certain extent, what the Internet was like.

It seems like there's a possibility here that this problem of inequality that we've been dealing with for a generation or so now could really get worse.

The frustrating thing about the AI ​​discussion is that everyone is talking about it, but there is still no political solution. We have no idea what will happen next Retrain people. We don't know if we need some form of UBIa universal basic income to help people in times of transition.

There are so many lessons we can learn from, for example, what happened to the Rust Belt when manufacturing moved overseas and the devastating impact that had on local communities. We could see something like this happen to AI over time.