Despite California’s impressive economic growth data, its development trajectory is becoming increasingly reliant on the technology industry. Now, with the tech sector fully embracing artificial intelligence, California’s finances face two major risks: the bursting of the artificial intelligence bubble or the exodus of AI innovators to other states.
California Governor Gavin Newsom has consistently highlighted California’s Gross Domestic Product (GDP) in comparison to major countries. In 2024, California’s GDP surpassed Japan’s, making it the fourth-largest economy globally.
However, the significance of this ranking should not be overstated. Due to varying costs and population sizes among states and countries, the comparison of “nominal” GDP has limited significance for living standards. When adjusted for purchasing power parity, California’s ranking would drop to 11th globally, but still higher than or close to countries with populations several times larger than ours.
Although California’s per capita GDP is exceptionally high, it still lags behind Washington, D.C., New York, Massachusetts, and Washington state. At the national level, California’s per capita GDP is also lower than Ireland, Luxembourg, and several smaller countries. Lastly, since California’s per capita GDP is driven by the high incomes of a few tech giants, it does not fully reflect the actual living standards of the middle class.
While Governor Newsom and his predecessor Jerry Brown’s economic policies have faced criticism, California’s economic growth rate has outpaced the national average since 2010. However, in recent years, states like Florida, Texas, and Arizona, which have experienced significant population inflows, have seen GDP growth rates surpassing California.
The future growth of California will be closely tied to the outlook of the technology industry. To understand the changes in California’s economic dependence on technology during Newsom’s tenure (elected in the 2018 midterm elections), I compared the market values of large publicly traded companies before and after he took office.
At the end of 2018, around 60% of the market value of large publicly traded companies in California came from tech firms. Today, this proportion is close to 80%. The main reason is the significant increase in the market values of a few companies, including NVIDIA, Apple, Alphabet (Google’s parent company), Broadcom, and Meta (Facebook’s parent company). These companies now have market values exceeding $1 trillion, whereas none exceeded $750 billion in 2018.
In contrast, another representative industry of California – film and television production – has seen a substantial decline. The number of days of outdoor filming in Los Angeles decreased by 53% from late 2019 to late 2024, and studio utilization rates dropped from about 90% to only 63%. Renowned entertainment companies have laid off employees, prop companies have shut down, and suppliers have gone out of business. The entertainment industry is no longer a pillar of California’s economy.
Meanwhile, publicly traded tech companies in California and several unlisted AI companies (such as OpenAI and Anthropic) are betting on the growth of artificial intelligence technology.
Artificial intelligence may drive continued or accelerated growth in California in the near to medium term. However, if state and local governments continue to increase tax burdens and regulatory pressures, this potential could be dampened. In recent years, a few tech companies have left California, including X, HP, and Oracle. If the billionaire wealth tax on the ballot next November passes, or if the State Assembly adds further regulations on AI in 2025, more tech firms could relocate.
Another risk is if the artificial intelligence bubble bursts (if indeed it is a bubble). The bursting of the “dot-com bubble” at the beginning of the 21st century compressed state government revenues and led to the recall of then-Governor Gray Davis. If a similar downturn occurs in 2026 or 2027, its impact on the budget will be far more severe than back then.
In the long run, a more business-friendly environment along with California’s abundant human resources may promote growth in other industries, once again diversifying the state’s economy. However, before that happens, California decision-makers should strive to retain the state’s tech giants and hope that they do not falter. ◇
The views expressed in this article are those of the author and do not represent the stance of The Epoch Times.