Jamie Dimon Says Hyperscaler AI Spending Could Hit $1 Trillion Next Year, Adding 1% to GDP Growth Each Year. Here’s Why That Boom Also Worries Him on Inflation.

JPMorgan Chase (JPM -1.24%) CEO Jamie Dimon is not only one of the most-followed big-bank CEOs but also one of the most-followed thinkers on markets and the economy. His annual letters spark strong interest among investors and economists, much like Warren Buffett‘s letters were closely followed by the financial community.

We are past earnings season, so the big market story these days is the rise in long-term bond yields, which have risen throughout the summer and prompted the Federal Reserve to raise interest rates for the first time since mid-2023.

The move in bond yields has certainly concerned investors. Here’s what Dimon had to say on the matter at the recent 11th annual J.P. Morgan India Conference.

Jamie Dimon, JPMorgan Chase CEO. Image source: JPMorgan Chase & Co.

Short-term pain, long-term gain from AI?

One potential reason for this summer’s increase in long-term bond yields is the deluge of spending on artificial intelligence infrastructure. At the J.P. Morgan India conference, Dimon said AI companies could spend over $1 trillion on AI infrastructure next year, which could contribute 1% to GDP growth on its own.

GDP growth is good, but Dimon also warned that the build-out “may add a little bit to inflation.” We’ve seen inflation concerns emerge this past summer, prompting the Fed’s first rate hike since 2023 back on Sept. 16.

Given concerns that inflation has been above the Fed’s 2% target since the end of the pandemic, should AI companies dial back or moderate their spending? Dimon doesn’t think so, because after the AI build-out — or at least after the steepest part of the spending ramp — AI also has a chance to enhance productivity and therefore lower inflation, acting as a deflationary force. Dimon noted that AI was “unbelievable technology” whose rapid expansion “looks like it’s going to continue.”

Dimon also cautioned that the ultimate winners of the AI boom may not be known yet, given that the dot-com boom and bust yielded unpredictable winners.

Don’t panic

The rise in long-term bond yields and subsequent rate hike are no doubt concerning, especially as U.S. debt reaches eye-watering levels not seen in the modern era. However, bond yields are still lower than they were in, say, the 1980s and even the 1990s. While the rate of change in bond yields over the summer is concerning, rates are not historically elevated in absolute terms, except relative to the abnormally low-rate environment between the great financial crisis and the COVID-19 pandemic.

Furthermore, AI may help quell inflationary impulses as an increasing number of consumers and businesses harness it to boost productivity.

However, that high-productivity future is not here yet, so it may be unwise to just assume inflation will magically come down in a few years. Therefore, investors should keep an open mind and closely follow the data going forward.

In essence, investors should stick to their Foolish investing plan: Continue to add to high-quality stocks, be somewhat diversified across assets that aren’t totally correlated, and keep an eye on long-term goals.