Bank of America’s Bold Insights on the AI Boom: It’s Just Beginning, Comparable to the ‘Internet in 1996’!

As investors gradually regain their composure and the surge in American tech stocks shows signs of stagnation or even a pullback, skepticism surrounding the artificial intelligence (AI) boom is growing. However, Bank of America maintains that this AI trend is still in its early stages, mirroring the evolution of the internet during the 1990s. In a recent report, BofA analysts noted that skeptics argue the revenue potential of generative AI (GenAI) does not justify the current level of investment in AI infrastructure. The report highlighted that, more important than the initial consumer use cases of the internet, are the thousands of applications and companies that emerged as a result.

As BofA expressed this viewpoint, investors have consistently funneled money into the AI sector, eager to see businesses reap efficiency and productivity gains from AI technologies. Thus far, however, results have not met expectations, fueling a rise in skepticism. For instance, Mike Wilson, chief U.S. equity strategist at Morgan Stanley, pointed out that the AI narrative is being "overhyped" and recommended that investors consider quality defensive stocks instead.

The insights from BofA’s report were based on a survey of stock analysts and macro strategists covering over 3,000 companies. The strategists believe that AI represents the third major technological cycle in the last 50 years, following the introduction of personal computers in 1981 and the internet in 1994, with the current AI trend initiated by the launch of ChatGPT in November 2022. Unlike previous tech waves that took 15 to 30 years to become mainstream, the impact of AI could materialize more swiftly. The analysts wrote, “Generative AI may catalyze a technological revolution, disrupting every industry and transforming the global economy within the next 5 to 10 years.”

Despite this potential, BofA’s analysts suggest that investors may underestimate the long-term implications of this technology while overestimating its short-term prospects, a hallmark of tech booms. They anticipate that AI-related capital expenditures could exceed $1 trillion in the coming years, stating that, compared to the internet era, we are only just entering 1996. The report also mentioned that current investment levels in companies like OpenAI, Anthropic, and Inflection AI are only prerequisites for developing GenAI applications, many of which are still in the testing phase and require time to mature.

BofA strategists predict that AI will drive profitability growth across most companies in the sector, with particularly significant increases expected in chip and software businesses, projected to rise by approximately 4.8% and 5.2%, respectively, over the next five years.