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THE HIDDEN COSTS OF THE AI GOLD RUSH

Over the past few years, spending across households, businesses, and governments has picked up. Inflation has lingered longer than many expected, and interest rates have moved higher alongside it. At the same time, the economy is becoming more capital-intensive again, meaning the cost of labor, energy, materials, and equipment is playing a bigger role in determining which companies come out ahead.

That’s where artificial intelligence comes in. Robert Almeida, a portfolio manager and global investment strategist at MFS, sees AI as central to this shift -- but not necessarily in the way many investors expect.

In a recent note, he says AI has the potential to improve productivity over time and could eventually lower costs by making it easier for new competitors to enter markets. But in the near term, he argues, it’s doing the opposite.

Indeed, building AI at scale isn’t cheap. It requires massive physical investment in data centers, chips, power generation, cooling systems, and a wide range of skilled labor and raw materials. While AI itself may be digital, the foundation it runs on is very much physical.

To Almeida, this matters because the economy wasn’t fully prepared for the shift. Years of underinvestment left infrastructure stretched thin, and demand for these resources is now rising faster than supply can keep up. That imbalance is pushing costs higher across the board.

Households feel it in rent, energy bills, food, and transportation. Businesses are dealing with higher wages, logistics costs, and technology spending. And these pressures don’t look temporary -- they reflect deeper structural changes.

For investors, Almeida says this raises the stakes. With costs rising and equity risk premiums tight, there’s less room for error.

Therefore, he believes it’s increasingly important to distinguish between companies with durable advantages and those facing hidden headwinds.

The key question isn’t whether AI will drive productivity; it’s who ends up bearing the costs along the way.

(Terence Gabriel)

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