2 forces are driving US economic growth, and the Iran war threatens to derail both, BofA says

• AI and consumer spending have been propping up the US economy in 2025 and 2026.
• The war in Iran threatens both to disrupt both of those things, Bank of America warns.
• "Stopping progress in AI would be equivalent to halting the US economy," David Sacks said this week.

The US economy is increasingly reliant on just two things to drive continued growth and the Iran war is a threat to both, Bank of America says.

Consumer spending and AI capex are major engines of GDP in the last several years. The bank said it expects both to continue contributing, but warned that the Iran war is a major headwind.

"Our base case is that the consumer will remain resilient and the AI tailwind will strengthen this year," BofA economists wrote.

"But we caution that the Iran war could derail both spending (via inflation) and AI capex (via energy supply bottlenecks)," they added.

Here is BofA's case for "two tailwinds, one risk" laid out.

Pillar 1: AI

Big Tech companies are spending billions to secure compute, building data centers and buying hardware. This spending is fueling economic growth.

Just Amazon, Microsoft, Meta, and Alphabet alone plan to spend up to $725 billion in capital expenditures in 2026. After Big Tech earnings, Morgan Stanley lifted its AI spending outlook to $800 billion, for Amazon, Microsoft, Meta, Alphabet, and Oracle.

David Sacks, President Trump's former AI and crypto czar, said that he expects AI capex will be a 2.5% tailwind to GDP growth in 2026 and more than 3% boost in 2027.

He argued that the nearly $1 trillion of expected capex still underestimates the economic stimulus potential of AI. "The ROI on capex is likely to dwarf the capex itself, which is why investment continues to grow," he wrote.

"Polls may show that AI is not popular, but economic growth is. At this point, stopping progress in AI would be equivalent to halting the U.S. economy," Sacks said.

AI spending has been a major contributor to economic growth in recent years.

Analysis from the Federal Reserve Bank of St. Louis found that AI investments contributed significantly to real GDP growth in 2025, surpassing the growth driven by IT components in the dot com era.

So far in 2026, GDP rose at an annual rate of 2% in the first quarter.

Within that economic growth, information processing equipment investment, which includes AI and data center spending, contributed 0.83% to the total GDP rate, while software investments added 0.51%, the latest Bureau of Economic Analysis data showed.

Pillar 2: Consumer spending

The US consumer is spending, despite sentiment hitting historic lows, and it's helping prop up the US economy.

Recently, Bank of America reported that total spending rose at the strongest rate since early 2023. While some of this growth in spending came from higher gas prices, spending excluding gas also rose.

The firm noted that consumer spending is "solid," but "slowing."

Consumer spending made up 1.08% of the first quarter GDP growth rate. This increase was driven by services, with healthcare being the primary driver, the BEA release said.

Healthcare inflation has been stubborn, limiting the Federal Reverse's ability to address inflation.

The risk: war with Iran

The Iran war is in its third month, and the the ongoing ceasefire looks fragile.

Bank of America warned that the conflict in the Middle East threatens both pillars of recent economic growth.

The surge in oil prices due to the energy market disruption has been one of the clearest impacts from the Iran war.

The energy market disruption could affect AI through supply bottlenecks. The emerging tech is already reshaping energy demand as companies race to secure energy to power AI.

The war in Iran could limit supply compounding potential shortages already tight energy market as AI drives a surge in demand.

The conflict could also dampen consumer spending as inflationary pressures weigh on consumers.

Beyond high gas prices, consumers could see a second wave of inflation from the war in Iran hitting groceries, clothing, medicine, and more, experts warned.

UBS chief global economist Paul Donovan compared consumer spending despite mounting inflationary pressures to the "Wile E Coyote" cartoons, saying that the gravity of the economic situation hasn't quite set in, but it will soon come crashing down.