(NewsNation) — The AI boom has many drawing comparisons to the dot-com bubble, but Federal Reserve Chair Jerome Powell says the two aren’t the same.
“This is different,” Powell told reporters Wednesday. “The companies that are so highly valued actually have earnings and stuff like that.”
During the dot-com era, by contrast, many were “ideas rather than companies,” Powell noted. “So there’s a clear bubble there.”
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The Fed chair’s comments come amid concerns that investment in AI may be running ahead of its payoff — leaving the stock market and broader U.S. economy on a potentially shaky foundation.
Just this week, Bill Gates told CNBC he sees parallels to the internet bubble, with some winners — but a lot of losers.
“There are a ton of these investments that will be dead ends,” Gates said.
Even so, he called AI the “biggest technical thing” of his lifetime and said, “Some of these companies will be glad they spent all this money.”
Top 10% account for nearly half of all consumer spending
In dollar terms, Google, Meta, Microsoft and Amazon are set to spend nearly $370 billion this year on data center construction alone, according to The Washington Post.
Harvard economist Jason Furman recently estimated that more than 90% of demand growth in the U.S. economy during the first half of the year came from just two GDP categories — information processing equipment and software.
Powell acknowledged Wednesday that AI investment is “clearly one of the big sources of growth in the economy” but added that consumer spending remains the dominant force.
“The consumer is spending and that’s a big, big chunk of what’s going on in the economy, substantially bigger than AI,” Powell said.
But even consumer spending comes with an asterisk. High earners have kept their wallets open, while lower-income households are feeling the heat — setting up a “K”-shaped economy where one branch rises while the other falls.
When asked about the bifurcated economy, Powell said policymakers “think there’s something there,” citing earnings calls from major companies that have highlighted growing strain among lower-income consumers.
Powell’s remarks came after officials voted to cut interest rates for the second time in six weeks — a move aimed at supporting the cooling labor market.
While it’s unclear if that weakness has accelerated recently due to the government shutdown-driven data blackout, the cool-off has coincided with the rise of AI.
“You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs,” Powell said. “And much of the time, they’re talking about AI and what it can do. So we’re watching that very carefully.”
He added that the technology “could absolutely have implications for job creation.”
