Despite Tariffs, Artificial Intelligence Remains The New Economy’s Growth Driver

Last week’s tariff policy rollercoaster ride appears likely to continue in coming weeks as Trump administration officials indicated that new trade barriers are coming. Some very good news remains in effect, for now: global “reciprocal tariffs” are delayed for 90 days and the tariffs on China (145%) and elsewhere have been amended to exempt semiconductors and electronics, including finished products such as Apple’s iPhones. Now, the negotiations begin. The administration is focused on raising US manufacturing capabilities of semiconductors, for one, because they power artificial intelligence, communications, IT infrastructure, and military technology. We suspect they will be strategic in their approach because they will want to support the engine likely to power US growth for the next decade and beyond.

All the tariff news has overshadowed investments in infrastructure to deploy artificial intelligence, which have continued apace. And for good reason: AI is already being used to change the ways software is written, banks run back offices, doctors diagnose disease, and businesses serve consumers. And this is just the beginning. So, let’s review why the stock prices have fallen.
Companies building AI capabilities now to provide AI services in the future face greater uncertainty than Duke Energy (DUK) does, for example. So, investors will often switch to lower risk stocks during periods of elevated uncertainty. During Q1, we saw measures of policy uncertainty rise to levels not seen since the Great Financial Crisis. Those policy risks add a headwind to economic activity and weaken consumer and business spending.

It’s important to understand, though, that demand to build the computing infrastructure for AI has not wavered. Nvidia, in last month’s technology conference, reiterated that demand for its specialty (and very expensive) chips continues to outstrip supply. Last week, Amazon’s CEO stated that despite threats of tariffs and other macro concerns, the company is not changing its planned spending on AI chips or hardware. Innovative AI announcements herald new applications in myriad areas of US industry, from software to farm equipment, beyond just semiconductors and servers, such as in the energy, utilities, and industrial sectors.

Data centers need lots of power and the US simply does not create enough of it. Utilities are already working with the cloud service providers (such as Amazon) to coordinate new plants with new data center construction. Energy will be needed to power those plants. Pipelines carrying natural gas to those plants will see volumes rise and will be able to collect higher fees. A data center needs more than the computer racks and the chips inside them. They need sophisticated air cleaning and handling systems, power backup systems, miles and miles of wiring, electrical panels, fire suppression systems, building security, and all sorts of software resources. The AI investment opportunity is becoming more diverse over time.

While trade barriers will raise the costs of building AI infrastructure, the administration appears sensitive to the importance of keeping pathways open to obtaining those critical inputs at reasonable prices in the short run, even as it encourages more onshoring of manufacturing in the long run. At ACM, we are invested in many companies related to AI, both in the technology sector and elsewhere. And many of those companies have thriving business in areas unrelated to AI. Companies in the industrial sector, for example, also have exposure to diverse end markets, including agriculture, construction, and aerospace. While policy volatility is likely to translate into stock volatility for some time, one opportunity for long-term portfolio appreciation reflects the role of AI in amplifying growth opportunities across the global economy and its likelihood of doing so for many years to come.

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