Bank of America warned on June 26 that the surge in AI spending has created unusually strong profit expectations but now carries growing risks as lower-cost models and open-source alternatives emerge. The bank noted that U.S. hyperscalers have underperformed the broader market by nearly 15% since January, signaling investor caution about future returns on heavy AI investments.
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Bank of America said in a June 26 research note that while AI spending has driven unusually strong profit expectations, the bank now sees growing risks to that outlook. The firm cited lower-cost AI models and rising competition as pressures on pricing power, noting that businesses are increasingly evaluating cheaper open-source AI offerings.
Why it matters
U.S. hyperscalers (large cloud-computing providers) have trailed the broader market by nearly 15% since January, which may reflect investor concerns about future returns on heavy AI-related spending. If cheaper alternatives and multiple competing tools reduce dependence on premium providers, companies could face margin pressure as the AI market becomes more competitive.
What to watch
Bank of America flagged semiconductor, capital goods, and mining as among the most stretched areas of the market due to their ties to the AI buildout, while identifying defensive sectors such as consumer staples as potentially offering relative stability during any AI-driven market pullback.
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