- Bank of America offered four reasons why investors are worrying too much about high AI spending.
- Tech expenditures are often front-loaded, and not always focused on creating new revenue streams, analysts wrote.
- Investors can look forward to fresh catalysts ahead, such as Nvidia's upcoming Blackwell AI product, the bank said.
Fear has gripped Wall Street that corporate frenzy over artificial intelligence is overdone and that a massive amount of spending has been poured toward a technology that may fail to meet expectations.
But according to Bank of America, the downturn in sentiment has come too soon. In a note published Monday, the bank outlined that high technological spending isn't abnormal and added that a few bullish triggers still lie ahead.
"Waiting for large cloud providers to confess about low AI [return on investment] is a wasted cause, in our view (at least till CY26)," Bank of America wrote.
There are four reasons the bank's analysts highlighted.
First, the implementation of hardware technologies in the past shows that spending is often front-loaded; the same should be expected for AI.
This was the case when investing in wireless connection networks, the bank said, such as 5G. Network upfront deployments lasted between three to four years.
Second, AI spending is focused on more than just creating new revenue streams. BofA analysts also noted that firms are thinking defensively when investing in the space.
For instance, these expenditures help tech firms maintain social or e-commerce dominance, or protect their reign over the online search sector.
Third and fourth, AI catalysts are not all in the past, the bank added.
While enterprise and sovereign AI adoption has not started significantly, analysts also noted that leading semiconductor firm Nvidia is only now on the brink of releasing its heavily anticipated Blackwell AI chip.
"Concerns about the return on investment (ROI) on high AI capex is valid but premature and inconclusive in our view," the bank wrote.
For the uninitiated, excitement over AI technology has been the core driver of this year's investing momentum, and tech stocks have led indexes through a series of all-time highs.
Large-cap names such as Amazon, Meta, Microsoft, and Apple have benefited from the market conviction that AI will revolutionize productivity and have poured extensive resources into the emerging technology.
Collectively, these four firms accounted for $357 billion in capex and research and development through the past four quarters, Goldman Sachs previously calculated — AI was cited as a significant benefactor of this sum.