Should state governors act now to capture their share of the tech/ AI investment boom? The answer is unequivocally yes. By many measures, the economic heft of the software and related industries now matches or exceeds that of the motor vehicle industry, a traditional target of state economic development efforts. In 2024, U.S. businesses invested $700 billion in software, about equal to consumer spending on motor vehicles. In the first half of calendar year 2025, Amazon, Alphabet, Microsoft, Meta, Oracle and Apple laid out a stunning $180 billion in total capital expenditures, primarily in AI-related structures and equipment.
To put these numbers in perspective, this tech and AI investment surge dramatically overshadows domestic investment from major manufacturing industries. The motor vehicle industry invested just $29 billion in structures and equipment across all states in 2023, while the primary metals industry, including steel and aluminum, invested only $15 billion.
Governors who attracted high-wage auto assembly and parts plants to their states in the 1980s and 1990s were hailed as economic heroes. They used economic development tools like tax incentives and worker training subsidies to lower the cost and riskiness of making such large investments. At the same time, smaller businesses were supported through manufacturing and agricultural extension programs, which helped them keep up with new developments. The economic literature suggests that the benefits of these policies, on average, substantially exceed the costs.
Today, governors are putting together a new “AI innovation toolbox,” analogous to the economic development tools of the past. Tax incentives, employed wisely, can be used to attract AI startups and data processing centers to boost state economies. Smart energy policy, including faster approval of new grid investments, demand side management and long-term capacity commitments, can better match electricity generation and transmission upgrades to AI, industrial and transportation demand, and minimize the impact on retail rates. Governors can leverage their state’s public and private universities to develop and attract AI-focused businesses. Worker training subsidies and AI-focused career technical education can ensure that existing workers are not left behind. AI “extension programs” can accelerate the adoption of AI by small businesses, making state industries such as manufacturing, agriculture, and construction more competitive, and creating more demand for AI-enabled workers.
