‘Doubts around the AI revolution are emerging,’ BofA says, as the market sees a ‘double-edged sword’ that could ‘cannibalize’ you

Fortune

by Nick Lichtenberg

February 20, 2026

AI-Generated Deep Dive Summary

The financial markets’ enthusiasm for the AI revolution is showing signs of waning, with growing doubts about its long-term benefits. In a recent note, Bank of America’s European equity strategy team warned that the euphoria surrounding AI may be cracking, as concerns about its “double-edged sword” nature are emerging. Instead of universally boosting corporate profits, AI could potentially destroy them by cannibalizing existing profit pools. This shift in sentiment is causing investors to rethink their optimistic projections for earnings per share (EPS) growth, with sectors like software, insurance, and wealth management facing sharp declines. The sellside consensus currently expects a 17% compound annualized EPS growth over the next five years, but this optimism overlooks the risks of profit cannibalization. Historically, such high growth rates have only been achieved during periods of depressed margins. However, with corporate margins already at all-time highs, AI adoption could lead to significant profit erosion rather than sustained growth. This reality is already impacting the market, as seen in the recent “SaaSpocalypse” where software-as-a-service stocks saw a massive selloff. Beyond direct business risks, AI’s rollout poses severe macroeconomic challenges, particularly in the labor market. The U.S. labor market is showing signs of weakness, with three-month payroll growth at an anemic 0.1%, a level historically associated with the end of equity bull runs. AI-related productivity gains could further depress corporate demand for labor, potentially leading to widespread job losses. This could backfire on tech giants, as their hyperscaler operations rely heavily on consumer advertising revenues, which depend on a healthy, employed workforce. Additionally, BofA highlights the growing strain on debt-fueled AI investments. Investors are increasingly skeptical about companies’ ability to sustain high levels of capital expenditure (capex) without overinvesting. Corporate bond spreads for U.S. hyperscalers have reached a three-year high, and private credit platforms exposed to software debt are struggling to cope with the risks. These concerns underscore the need for caution as markets reassess the AI narrative. While AI offers transformative potential, its risks—ranging from profit cannibalization to macroeconomic instability—are becoming increasingly apparent. For businesses and investors alike, understanding these dual-edged risks is crucial in navigating the uncertain future of the AI revolution.

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Originally published on Fortune on 2/20/2026