For Cameron Pappas, proprietor of Norton’s Florist located in Birmingham, Alabama, the surge in artificial intelligence feels like a distant phenomenon.
While names like Nvidia, Alphabet and Broadcom are propelling the stock market to new heights and supporting GDP, Pappas is confronted with the realities of the actual economy, which is greatly distanced from Wall Street and Silicon Valley.
Small businesses like Norton’s and other companies across retail, construction, and hospitality sectors are grappling with increased costs due to the extensive tariffs imposed by the Trump administration, as downbeat consumers cut back on their spending.
“We are meticulously monitoring all our expenses,” Pappas, 36, shared with CNBC during an interview.
Norton’s earned $4 million in revenue last year by providing flowers, plants, and gifts to the community. To avoid escalating prices, which could drive customers away, Pappas has had to be inventive, modifying certain designs.
“If a bouquet contains 25 stems, reducing that by three or four stems allows us to maintain the price,” Pappas explained. “It has truly compelled us to concentrate on this and ensure that our pricing is as optimal as possible.”
Pappas’ experiences, as well as many similar ones, are being obscured in broader economic data by the influence of AI. In the first six months of the year, capital expenditures related to AI contributed 1.1% to GDP growth, as reported by a report from September issued by JPMorgan Chase. This expenditure outstripped U.S. consumer spending “as a growth driver,” the report stated.
Total U.S. GDP rose at an annual rate of 3.8% during the second quarter of 2025, following a 0.5% decrease in the first quarter, reported the Commerce Department.
U.S. manufacturing expenditures have contracted for seven consecutive months, according to the Institute for Supply Management. Furthermore, construction spending has remained stagnant or decreased, attributed to high interest rates and rising costs. Cushman & Wakefield indicated in a report this month that total project expenses for construction in the fourth quarter will rise 4.6% over the previous year due to tariffs on construction materials.
The stock market reflects a similar disjunction between AI-related stocks and the broader economy.
Eight technology firms are valued at $1 trillion or more and are, to various extents, linked to AI. These companies — Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, Tesla and Broadcom — constitute around 37% of the S&P 500. Nvidia, boasting a $4.5 trillion market capitalization, represents over 7% of the index’s total value alone.
Investors are enthusiastic about the substantial funding they’re observing in AI infrastructure. Broadcom shares have surged more than 50% this year following a more than twofold increase in each of the previous two years, while Nvidia and Alphabet have each risen nearly 40% in 2025.
This explains the 15% and 20% increases in the S&P 500 and Nasdaq, respectively, reaching all-time highs on Friday, even as the ongoing government shutdown stirs concerns about the economy.
Conversely, the S&P 500 segments encompassing consumer discretionary and essential goods companies have gained less than 5% year to date.
A troubling indication in the consumer market surfaced on Thursday when Target announced it is cutting 1,800 corporate positions — the retailer’s first significant layoff round in a decade. Target’s stock has plummeted by 30% this year.
“I believe the notion that the AI economy is artificially inflating GDP numbers is accurate,” Arun Sundararajan, a professor at New York University’s Stern School of Business, conveyed to CNBC in an interview. “There might be some weakness in the broader economy, or rather, mixed growth.”
Investors will be focused on AI discussions in the upcoming days during the busiest earnings stretch of the quarter for tech companies, eagerly awaiting updates on capital spending. Meta, Microsoft, and Alphabet are scheduled to report on Wednesday, followed by Apple and Amazon on Thursday.
Last month, Nvidia unveiled a $100 billion investment in OpenAI, a startup appraised at $500 billion. This funding will assist OpenAI in deploying at least 10 gigawatts of Nvidia systems, approximately equivalent to the yearly energy consumption of 8 million U.S. households.
Shares of Advanced Micro Devices have doubled this year and jumped over 20% earlier this month following the announcement of a partnership with OpenAI, while Oracle has seen substantial growth recently linked to its connections with OpenAI and the larger infrastructure expansions.
“Are we potentially inflating the economy now, thereby setting ourselves up for a downturn later?” Sundararajan questioned. He noted that there are no indications of a slow demand for AI infrastructure in the near future.
‘Tariff price strategies’
For local businesses, awareness of the AI frenzy mostly comes from media highlights. One in four small business owners find themselves in “survival mode” as they face challenges such as escalating costs and tariffs, according to a September KeyBank Survey. This represents a segment of the economy that typically contributes approximately 40% of the nation’s GDP.
Pappas’ flower shop was established in 1921 and acquired by his father in 2002. The business has weathered the Great Depression, World War II, and the Covid pandemic. Pappas recalled that his late father reminded him that those challenging times were merely “another season” for Norton’s, and such difficulties are part of the business landscape.
However, Trump’s tariffs have imposed an entirely new set of challenges, as around 80% of all cut flowers in the U.S. are sourced from countries such as Colombia and Ecuador, according to the U.S. Department of Agriculture.
Norton’s cannot evade heightened import costs; however, Pappas mentioned that he has started purchasing some flowers straight from South American growers, allowing him to save compared to going through distributors that impose additional fees.
Pappas described this as part of his “tariff price management” strategy.
Trump’s tariffs are projected to impose costs of over $1.2 trillion on global firms this year, with the majority of these expenses being shifted to consumers as per S&P Global.
With the holiday season fast approaching, consumer sentiment is especially critical. The outlook is grim.
According to a Deloitte survey conducted this month, 57% of U.S. consumers anticipate economic deterioration in the upcoming year, up from 30% last year. This is the most pessimistic viewpoint since the consultancy began monitoring sentiment in 1997.
Gen Z consumers, defined by the survey as individuals aged 18 to 28, indicated plans to spend an average of 34% less this holiday season in comparison to last year. Millennials, aged 29 to 44, expect to cut their holiday spending by an average of 13% this season.
Furthermore, seasonal hiring within the retail industry is expected to decrease to its lowest level since the 2009 recession, as reported by a September analysis from job placement firm Challenger, Gray & Christmas.
The firm also published another report earlier this month revealing that new hiring in the U.S. has reached just under 205,000 this year, marking a 58% decline compared to the same timeframe last year.
Starbucks unveiled a $1 billion restructuring initiative in September that entails the closure of several stores across North America. Approximately 900 non-retail staff were let go as part of this initiative, along with another 1,100 corporate positions eliminated earlier this year.
Starbucks stock has decreased by around 6% this year.
Shares of Wyndham Hotels & Resortsannouncement. The stock has declined approximately 25% this year.
Even in sectors of the technology industry that have gained significantly from the AI surge, layoffs have been commonplace. Microsoft declared its intention to cut roughly 9,000 positions in July, attributing part of this decision to a reduction in management layers. Salesforce is among various tech firms that have reported layoffs, citing that AI can now manage much of the work.
Nonetheless, Hatim Rahman, an associate professor focused on AI at Northwestern University’s Kellogg School of Management, pointed out that most businesses leveraging AI for operational efficiencies won’t see immediate results. Consequently, companies cannot rely on this technology to offset declining revenue, and Rahman remarked, “the journey ahead will be challenging.”
“AI is not simply a plug-and-play fix,” Rahman noted. “For numerous organizations, it will necessitate engagement with individuals, processes, culture, and tools to harness its benefits. Collectively, this will require time.”
WATCH: The AI surge is elevating the stock market, yet it may be concealing a faltering economy
