Reuters Econ World: AI mood swings

By Carmel Crimmins

Feb 26 (Reuters) - How are we feeling about AI right now? Wall Street can’t seem to make up its mind. Nvidia underwhelmed investors despite a blockbuster quarter and a bullish sales forecast. Its chips are powering the AI revolution but shareholders are clearly worried about the durability of the boom and they want some cash back.

While fretting about the AI economy overheating, investors are also worried that it will tear through the consumer economy, ripping up jobs and business models. But they can see the benefit of partnerships between companies and AI labs.

It’s understandable that investor sentiment is so skittish right now. A ton of money has been bet on the AI economy and the endgame is uncertain. Without hard data to show how the technology is impacting jobs, productivity and the wider economy, investors are left latching on to viral scare stories and their gut.

Fed policymakers are also wading into the AI debate. Federal Reserve Governor Michael Barr doesn’t see the AI boom as a reason for lowering policy rates even with a potential boost to productivity. Fed Vice Chair Philip Jefferson has also flagged how faster productivity gains may, at least temporarily, lead to an increase in the so-called neutral rate – a guidepost for monetary policy.

Kevin Warsh, Trump’s pick to take over as Fed chair when Jerome Powell’s term ends in May, has argued that AI could trigger a productivity boom that would allow for lower interest rates because it could mean economic growth without a boost to inflation.

But in the short run, investment in AI could be inflationary – if the demand for the energy and components of this boom outstrip supply. The warning signs are already there. The demand for memory chips to run AI chatbots is getting worse, and Nvidia warned this week that it will affect its gaming business. A respondent in the Dallas Fed’s Texas Services Sector Outlook released on Tuesday said the components faced “pandemic-like supply constraints.”

The situation is a boon for memory chipmakers and their share prices. South Korea’s equity benchmark index is up over 40% this year after rising more than 75% in 2025 powered by Samsung Electronics, the world’s top memory chipmaker, and rival SK Hynix.

A shortage of memory chips could inflate the prices of a whole range of products from smartphones and laptops to cars and data centers. So too could shortages of two niche rare earths used in chips, defense and aerospace. The shortages of yttrium and scandium, produced almost entirely in China, underscore the West’s vulnerabilities. While Beijing has allowed many rare earth exports to resume since it imposed restrictions in April, shipments of these materials still rarely make it to the U.S. despite the October detente with Washington.

China’s chokehold on many strategic minerals was one of the reasons why the U.S. and Europe were so keen to “de-risk” from Beijing. Now that policy mantra is being applied to DC. The never-ending tariff psychodrama and President Donald Trump’s designs on Greenland triggered a change of tack earlier this year among the so-called “Middle Powers”. Canadian Prime Minister Mark Carney used a speech at Davos to sketch out the shift and it’s the topic of this week’s Reuters Econ World podcast. Listen here.

THE HEADLINES

• US seeks deal to prevent Iran acquiring nuclear arsenal

• Cuba says it killed four exiles, wounded six others who attacked from Florida speedboat

• Denmark to hold parliamentary election as Frederiksen bets on Greenland crisis boost

• CEO of World Economic Forum quits after Epstein ties scrutinised

THE CHART

The AI boom is driving a global memory chip shortage and South Korea is a winner. Home to chip manufacturers Samsung Electronics and SK Hynix, the KOSPI index is up a whopping 50% for the year so far and has doubled in six months.

THE PODCAST

“Do we need trade to, to keep world peace? It certainly helps when you've got something at stake .” Mike Dolan, Editor-at-Large, finance and markets, on the latest episode of Reuters Econ World podcast. On this week's show, we look at efforts by America's allies to "de-risk" from the United States. Listen here.

THE REAL WORLD

• Ukraine: Exclusive: Ukraine images indicate Russia used missile at heart of nuclear pact collapse

• Spain: A lack of information and state funding could derail Spain's newest drive to fast-track legal status for at least half a million undocumented migrants

• Hong Kong: Pro-democracy media tycoon Jimmy Lai's fraud conviction and prison sentence were overturned by a Hong Kong court on Thursday in a surprise legal decision

THE WEEK AHEAD

• March 1: OPEC meeting

• March 5: China’s National People’s Congress starts

• March 6: U.S. Nonfarm payrolls