European Equity Strategy: Is AI momentum starting to cool?

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European Equity Strategy: Is AI momentum starting to cool?

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European Equity Strategy

Is AI momentum starting to cool?

The AI capex boom has fuelled a powerful momentum-driven rally: the capex splurge has created a 26 June 2026

macro and market environment unlike anything investors have seen over the past two decades, lifting margin

Equity Strategyexpectations to all-time highs, compressing risk premia close to multi-decade lows, and powering high-

Europe

momentum stocks to record outperformance.

Is AI a high-margin business? While the usefulness of AI is no longer in doubt, end users’ willingness to pay

remains uncertain. Early adoption was boosted by subsidised pricing, but recent price increases by leading

model providers have exposed users’ cost sensitivity, with corporates beginning to ration usage and/or shift to

cheaper open-source alternatives. Lower-cost models are establishing a global price anchor, while new tools

and platforms reduce the barriers to entry, increase price transparency, and limit vendor lock-in. This points to SebastianInvestment RaedlerStrategist>>

a more commoditised and competitive landscape than implied by record margin expectations, especially given MLI (UK)

+44 20 7996 1749

sharply rising input costs, as evidenced by Micron’s results this week. sebastian.raedler@bofa.com

Is AI momentum starting to cool? US hyperscalers have underperformed the S&P 500 by almost 15% since Thomas Pearce, CFA >>

Investment Strategist

January, suggesting growing investor unease about expected returns. If monetization falls short, pressure to MLI (UK)

curb spending could intensify, weakening the AI-driven support for economic growth, corporate earnings, and +44 20 7996 2081

tpearce@bofa.com

market momentum.