Relentless optimism surrounding artificial intelligence (AI) continues to propel global markets, even as political and fiscal uncertainty dominates headlines in the United States, Europe, and the United Kingdom, according to a recent research note from Barclays.

Despite the US government shutdown, fiscal policy disputes across the EU and UK, and Russia’s ongoing ‘hybrid warfare’ against Europe, investors’ enthusiasm for AI shows no sign of waning.

AI – and nothing else seems to matter

Investor confidence in AI remains unbroken, with almost daily announcements of new deals and capital commitments driving equity valuations ever higher. This week, OpenAI’s latest share sale – valuing the company at around $500 billion – injected fresh momentum into markets, sending major indices to new record highs.

In another development, Global Infrastructure Partners (GIP), owned by BlackRock, is reportedly in advanced negotiations to acquire Aligned Data Centers in a deal estimated at $40 billion. The AI investment firm MGX, owned by Abu Dhabi’s Mubadala sovereign wealth fund, is also said to be planning an independent investment as part of the broader transaction.

“These are big funds, large deals and greater expectations,” Barclays noted, adding that AI has now evolved beyond being a fashionable investment narrative. The enormous sums involved have given the sector macroeconomic significance, even before it is clear whether AI will deliver the unprecedented productivity gains that some predict.

In the United States, combined spending in three GDP categories – computers and peripherals, software, and data centres – contributed roughly 1 percentage point to quarter-on-quarter annualised GDP growth in both Q1 and Q2 of 2025. Overall GDP growth during those periods averaged 1.4%.

Although much of this spending involves imported hardware, Barclays said the impact on aggregate economic activity remains substantial.

Demand for computing capacity continues to outstrip supply, pushing major hyperscalers – firms providing large-scale cloud infrastructure and services – to ramp up capital expenditure by hundreds of billions annually. The bank expects investment growth to continue in the near term.

Barclays Equity Research strategists remain positive on the AI investment theme, as outlined in their report Lost My Chain-of-Thought: Could the AI narrative stumble?, while also acknowledging potential risks, discussed further in The Flip Side Podcast (Episode 76: Is the AI investment cycle a sign of history repeating?).

Politics turns fiscal – and fiscal turns political

While markets fixate on AI, Washington has been paralysed by a government shutdown that began on 1 October, delaying the release of key economic data, including the September payrolls report. The shutdown occurred after Congress failed to pass appropriation bills or a continuing resolution to fund the government at the start of fiscal year 2026.

At present, there is little clarity on how long the closure will last, though it appears likely to extend into next week. The impasse stems largely from disagreements over extending healthcare subsidies set to expire at year-end. Democrats insist on their continuation, while Republicans refuse to negotiate until government funding is restored. Democrats are also seeking guarantees that Republicans will not later attempt to undo spending agreements through rescission bills, which require only a simple Senate majority.

According to Barclays, a government shutdown typically reduces GDP growth by roughly 15 basis points per week, although lost output is usually recovered once operations resume. However, prolonged closures – such as the record 35-day shutdown of 2018–19 – risk complicating monetary policy decisions. If this shutdown persists, the Federal Reserve may have to decide on its 29 October policy meeting without updated labour or inflation data.

Federal employees furloughed during the key reference week (including 12 October) will not be counted in the October payrolls report.

This shutdown also carries the potential for longer-term consequences, as some Republicans reportedly view it as an opportunity to reduce the federal workforce and cut programmes aligned with Democratic priorities. According to Press Secretary Leavitt, the cuts could affect “thousands” of government employees. Should layoffs occur, affected workers are expected to remain on payroll until mid-December, with the terminations reflected in the January employment report. 

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