Could an AI Spending Crunch Cause a Recession?

Morningstar · Preston Caldwell · 2026-11-05 14:00 UTC

Here’s why we think a recession is unlikely and would be mild if it occurred.

Here’s why we think a recession is unlikely and would be mild if it occurred.

Investors are raising concerns about a slowdown in artificial intelligence spending. While the market doesn’t appear to be factoring in significant recession risk yet, it’s worth a closer look given how important AI has been on the demand side of the economy. We think that an AI spending crunch, if it occurs, is unlikely to produce a recession.

The shock to aggregate demand should be small enough that the Federal Reserve can offset it by lowering interest rates. If an economic slowdown did occur, the worst case would be something like the 2001 recession after the dot-com bust, which was very mild.

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