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U.S. economic growth rose to 2 percent in the first quarter as rising investment in AI infrastructure offset a slowdown in consumer spending.
According to data from the Bureau of Economic Analysis, private investment rose 8.7 percent year-over-year in the first quarter of 2026 as companies rushed to buy equipment used in data centers at the heart of the AI boom.
Investments contributed almost 1.5 percentage points to the overall growth rate of 2 percent, putting it well above the 0.5 percent pace in the last three months of 2025.
“This is still an AI-powered economy, and AI is doing a lot of the heavy lifting to keep U.S. growth afloat,” said Olu Sonola, head of U.S. economics at Fitch Ratings.
The latest earnings reports released this week by the tech giants dominating the investment landscape suggest that AI will likely continue to drive growth in the coming quarters as companies continue to borrow heavily to buy chips and build massive data centers in the US.
The releases showed that the big four ‘hyperscalers’ – Amazon, Meta, Microsoft and Alphabet – together expect to spend 77 percent more on capital expenditures than last year’s record $410 billion.
In a further sign that AI spending is rippling in the world’s largest economy, heavy machinery group Caterpillar has benefited from higher order rates over the past year as its largest customers and the data center industry have raised their expectations for capital spending.
Shares of the company, known for its bright yellow construction equipment, have nearly tripled in the past year as its gas engines and turbines, long favored as a backup power solution by mines and remote power grids, became increasingly sought after by U.S. data centers.
“Customers are committing to longer-term orders on some orders well into 2028,” CEO Joe Creed told analysts Thursday as the company reported a record backlog of orders and outpacing results that sent the shares 10 percent higher to a new peak and a market value of $410 billion.
Michael Pearce, chief US economist at Oxford Economics, said the AI expansion and the impact of the tax cuts in US President Donald Trump’s landmark budget legislation, the One Big Beautiful Bill, would “continue to boost growth for the rest of the year”.
Still, he added that the rise in energy prices caused by Trump’s war in Iran will “take some of the shine off what would otherwise have been a strong year for the economy.”
Growth in US consumer spending, one of the main drivers of the US economy, cooled in the first quarter from 1.9 percent in the last three months of 2025 to 1.6 percent on an annual basis.
Trade negatively impacted GDP in the first quarter, with imports rising faster than exports as companies continue to struggle with frequent swings in Trump’s tariff policies. The Supreme Court ruled in February that many of the tasks were illegal.
The GDP report included March, the first month of the Iran war, which sent fuel prices soaring and affected many American households. Brent crude briefly rose above $126 a barrel on Thursday, hitting its highest level since 2022, as a blockade of the Strait of Hormuz deepens the global energy crisis.
Federal Reserve Chairman Jay Powell said Wednesday that “recent indicators suggest economic activity has been growing at a solid pace,” citing “resilient” consumer spending and the “rapid pace” of business investment.
But he warned that “the economic outlook remains highly uncertain” and said “the conflict in the Middle East has increased this uncertainty.”
The BEA data showed a key measure of U.S. inflation rose to the highest level in almost three years in March, underscoring the impact of the war in Iran on price pressures in the world’s largest economy. Total personal consumption expenditure inflation, which the Fed uses for its 2 percent inflation target, rose to 3.5 percent last month. The 2.8 percent increase in February took the figures to the highest level since May 2023.
The war led to a rise in gasoline prices in the US. Figures from AAA show the price of a gallon is now $4.30, up from just under $3 at the end of February.
