Bank of America warns that AI optimism is overheating: the market is betting on an "AI version of the WTO moment"

Deep Tide TechFlow News, May 30 — Bank of America Securities (BofA Securities) in its latest research report pointed out that behind the continuous new highs in global stock markets, there is a rare divergence in recent years between corporate earnings expectations and macroeconomic fundamentals.

Data shows that the MSCI Global Index's earnings per share (EPS) forecast for the next 12 months has increased by about 9% over the past three months, equivalent to an annualized growth rate of nearly 40%; meanwhile, the profit momentum of the S&P 500 index over three months has risen to 12%, reaching the highest level in nearly 40 years. However, at the same time, the global PMI index has continued to decline to about 50.5, at its lowest point in nearly two years.

BofA pointed out that about two-thirds of the upward revision in earnings expectations in this cycle comes from profit margin expansion rather than revenue growth. The projected profit margins for the next 12 months in Europe and global markets have risen to 13.9% and 11.4%, respectively, both at historical highs.

The report compares the current market logic to China’s accession to the WTO in 2001. At that time, a large influx of labor into the global economic system significantly increased the share of corporate profits in GDP. Today, the market bets that large-scale application of AI technology will reduce white-collar workers' bargaining power, thereby driving corporate profit margins into a new structural upward cycle.

However, BofA also listed five major risks, including a slowdown in the global economy, demand contraction caused by AI replacing jobs, rising costs of large model inference, slower-than-expected productivity gains, and potential large-scale unemployment triggering regulatory and political backlash.

The report believes that the market is currently pricing in an ideal scenario of “strong demand and continuously high profit margins.” If the macro environment deteriorates or risk premiums rise in the future, corporate earnings expectations and valuation levels could face re-adjustment.