Overview
Bank of America Global Research has issued a cautionary note on the investment consensus surrounding artificial intelligence, arguing that the technology's potential is increasingly being priced as an "upside-only" driver for corporate profits. The bank now sees meaningful downside risk for European equities, forecasting a 15% decline for the EURO STOXX 600 Futures index by the second quarter of 2026.
Consensus earnings growth appears lofty
Central to BofA's warning is the view that market expectations for earnings per share are excessively optimistic. The bank highlights that global equities are currently valued on the basis of a 17% annualized EPS growth rate over the next five years. BofA argues this consensus fails to account for the way competitive forces unleashed by AI could cannibalize existing margins, forcing many companies to increase spending on AI merely to maintain current positions.
Productivity assumptions may be vulnerable
Part of the valuation gap, the bank says, reflects the market pricing in substantial productivity gains - nearly 3% in the United States - that may not materialize. Official projections cited by BofA place U.S. productivity growth much lower, at 0.1% over the next decade according to the CBO. If AI does not deliver the sizable efficiency improvements that investors have implicitly paid for, valuations could adjust sharply.
Winners and losers across sectors
BofA underscores that AI will produce winners but will also create a broad "obsolescence risk" for sectors such as insurance, asset management, and traditional software. The bank contends that some parts of the AI infrastructure trade - notably semiconductors, mining and capital goods - now look stretched and are vulnerable to a reversal.
Positioning changes: semiconductors downgraded
Reflecting those concerns, BofA has downgraded semiconductors to Underweight. The analysts point to growing investor worries that corporate over-investment in AI capital expenditure could be an issue, particularly with electricity costs and DRAM prices remaining high. These cost pressures, the bank suggests, could weigh on the attractiveness of semiconductor exposure.
Defensive pivots and software nuance
In response, the bank recommends moving into sectors it regards as less exposed to AI disruption or those that may benefit from higher risk premia. BofA expresses a preference for defensive areas such as food and beverages, telecoms and chemicals. At the same time, the bank retains an Overweight stance on parts of the software sector - specifically firms that control proprietary data and are tightly integrated into customer workflows - arguing that AI could reinforce their competitive positions rather than destroy them.
Implications for investors
BofA's note signals a shift from unalloyed enthusiasm for AI towards a more nuanced assessment that balances potential gains against structural risks. The bank's projection of a 15% downside for a major European equity benchmark underscores how these concerns could translate into material market moves over the coming quarters.