"In a note to clients reviewed by Fortune, BofA strategists declared that "doubts around the AI revolution are emerging," with the market narrative rapidly shifting from an "upside-only" perspective to serious concerns that AI is a "double-edged sword". Chief among these new fears is the growing realization that AI might not universally boost corporate profits-it might actively destroy them. BofA highlighted several large "downside risks" that is, frankly, bumming out the AI trade."
"BofA points out a glaring blind spot in current market expectations. The sellside consensus currently projects a staggering 17% compound annualized earnings per share (EPS) growth for global equities over the next five years. This lies at the heart of what strategists call the "cannibalization" paradox. Corporate margins are already at all-time highs, BofA strategists noted, complicating this 17% forecast."
Markets priced the AI boom as an upside-only event for over a year, but emerging doubts signal a shift toward viewing AI as a double-edged sword. Concerns center on AI potentially destroying rather than boosting corporate profits through cannibalization, capex reductions, and other negative effects. Sellside forecasts imply 17% compound annual EPS growth over five years despite corporate margins at all-time highs, creating a cannibalization paradox. Historically, double-digit EPS growth accompanied depressed margins. Optimistic expectations require sustained tech EPS gains that do not cannibalize existing profit pools, prompting investor re-evaluation of AI-vulnerable sectors such as software, insurance, and wealth management.
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