BofA sees a number of AI-related risks that could – Money News
Investing.com – The period of straightforward positive factors in AI-related shares would possibly lastly be over. While traders spent the final 12 months pricing the AI revolution as an “upside-only” win for company earnings, a new BofA Global Research be aware suggests the market is beginning to wake up to the “double-edged sword” nature of the technology.
The bank is now projecting a 15% draw back for the EURO STOXX 600 Futures index by the second quarter of 2026. This bearish outlook stems from the growing realization that whereas AI creates winners, it additionally carries a large “obsolescence risk” for sectors like insurance coverage, asset management, and conventional software program.
One of the most important crimson flags highlighted by BofA is the present consensus for earnings growth.
BofA analysts have identified that world equities are presently priced for a 17% annualized EPS growth over the following 5 years, which now appears wildly over-optimistic as a result of it ignores how AI competitors will more than likely cannibalize current revenue margins.
Essentially, corporations could be compelled to spend more on AI simply to remain in the identical place, eating into their margins. There’s additionally the “productivity disappointment” issue. While the market is pricing in U.S. productiveness growth of practically 3%, official projections from the CBO sit as low as 0.1% for the following decade. If AI doesn’t ship the huge effectivity positive factors that traders have already paid for, the valuation hole could snap shut violently.
Because the “AI infrastructure” commerce, equivalent to semiconductors, mining, and capital items, appears so stretched, BofA has formally downgraded semiconductors to Underweight. The analysts argue that for the primary time, traders are literally beginning to fear about company over-investment in AI capex, particularly with electrical energy prices and DRAM costs staying high.
So, the place is the “safe” money going? The be aware suggests transferring into sectors that are both proof against AI disruption or that benefit from increased risk premiums. The bank is now favoring “boring” defensive areas like food and drinks, telecoms, and chemical compounds.
Interestingly, the bank stays Overweight on software program. While the sector has been punished currently, BofA argues the “intensity of concern” is overblown for corporations that own proprietary knowledge and are deeply embedded in buyer workflows. For such corporations, AI would possibly truly be a defensive moat moderately than a wrecking ball.
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BofA sees a number of AI-related risks that could problem rally in EU shares
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