Who Will Benefit From the AI-Driven Acceleration of the Economy?

Who will benefit from the AI-driven economic boom?

PHILADELPHIA—We at Vanguard expect U.S. GDP to grow by 3% in 2027. This estimate is significantly higher than other professional forecasts and assumes that demand for risky assets will remain strong.

Photo by DC Studio/magnific

Growth will not result from gradual improvements. It will be a fundamental shift in the economy’s growth trajectory. Drawing on a wealth of data, we have analyzed the current potential of artificial intelligence (AI), compared this technology to previous revolutionary technologies, and ultimately forecast tectonic shifts in the economy.

Moreover, AI is already accelerating economic activity, although it may take another year or two before we know for sure whether it will become as transformative an economic force as the personal computer.

For our forecast to come true, AI must move beyond the current phase of automation—where it simply replaces humans in performing tasks—through a phase of augmentation, where it helps people do their jobs better, to a level where it enables the emergence of products, services, and industries that we cannot even imagine yet.

Today, the focus is on automation, but it is precisely the last two phases that will determine whether AI becomes a general-purpose technology.

Until electricity became economically viable, few could have imagined electric trams, movie theaters, or household appliances. Similar expectations that AI will mature into a general-purpose technology allow us to take an optimistic view of the prospects for the labor market.

Fears about job losses are entirely understandable, but pessimists who predict a dystopian scenario in which workers in their prime are displaced tend not to consider the jobs that have not yet been created.

Nor do they pay sufficient attention to the growth in income (and spending) driven by a tenfold increase in worker productivity. Just ask accountants how their lives have changed since computer programs transformed their field. Productivity has skyrocketed.

Radical changes do not always mean just automation. Furthermore, the full-scale implementation of AI will boost productivity so significantly that it will offset (and, apparently, more than make up for) the challenges posed by an aging population, declining birth rates, and reduced immigration.

The benefits of AI will go not to developers, but to users

However, the path from investment in AI to widespread productivity growth will take years, not quarters. (As a historical parallel, one might recall 1997—the period when the internet was being built.) The current investment phase will last at least another year or two, despite its already staggering scale. Wealthy AI hyperscalers appear capable of delivering on their record-breaking investment promises, and companies are already eagerly adopting AI tools.

But the market rally is outpacing economic realities. A significant portion of AI’s potential benefits is already priced into stocks (especially those of large-cap U.S. tech companies).

Over the next year or two, solid earnings growth driven by AI investments will likely justify these valuations and may even push markets even higher.

But this is a short-term phenomenon. In the long run, the investment math usually changes, especially during periods of rapid technological change.

The lesson from history is clear here. Companies that create revolutionary technologies rarely reap the greatest long-term benefits. No, those benefits go to the users. Electricity brought greater wealth not to energy companies, but to manufacturers, whose assembly lines could now operate around the clock. Cars enriched suburban developers and retailers more than the automakers themselves.

AI may well follow this trend. The current phase of development (dominated by hyperscalers, chip manufacturers, and developers of foundational models) will give way to a phase of consumption, when the greatest benefits will go to end users across a wide range of industries.

Currently, these companies are trading based on valuation multiples, and many of them are located not in the U.S. but in service-oriented economies with aging populations, for which increases in labor productivity will be a tremendous boon.

Watch for “signs” from the market

What types of companies stand to gain? Healthcare providers will have tremendous opportunities to automate administrative tasks and improve diagnostic accuracy.

Financial services firms will be able to provide even more personalized advice at even lower prices.

Business services companies will be able to complement human expertise with AI-powered analytics. These companies are already exploring where they could automate tasks, and they stand to gain significantly if, over time, AI learns to complement employees’ skills and lives up to expectations.

Yes, we cannot say with certainty that AI will transform the economy in a positive way. But we’ll need to watch for signs: young workers will begin entering the labor market with AI-enhanced skills; the creation of startups outside the tech sector will accelerate; genuine discoveries (including breakthroughs in medicine) will become more frequent thanks to AI-assisted research.

When these trends emerge, we will most likely be witnessing the early stages of economic AI transformation. In many ways, it will resemble the path taken by electricity and personal computers.

We now have an opportunity to recognize that markets appear to be correctly assessing the economic potential of AI but have miscalculated exactly where the benefits of that potential will be concentrated over the course of the entire cycle.

Over the next five to ten years, value-oriented U.S. stocks; developed-market stocks; high-quality fixed-income instruments.

The idea is not to turn away from the tech sector or try to time the market. The idea is to recognize that, in a world transformed by AI, we will have to transition from the current phase—dominated by AI builders—to a phase where AI users will take center stage.

This happens every time a great technology transforms the world. For long-term investors, this future transition creates both risks that must be managed in growth-stock portfolios and opportunities that must be seized before the next phase of the AI revolution begins.