SKN | Bank of America Flags Rising Market Risks as AI-Driven Growth Faces a 2027 Test

Key Takeaways:

• Bank of America expects third-quarter earnings per share to grow 32%, with technology and power companies benefiting from AI investment and rising energy demand.
• The bank sees a more challenging outlook beyond those sectors, warning that interest rates, commodity pressures and geopolitical tensions could weigh on broader earnings growth.
• For wealth holders, Bank of America’s analysis highlights the risk of relying on strong headline earnings when market valuations already reflect elevated expectations.

Bank of America is warning that the US equity market’s strong performance may face a more difficult test as investors move into the third-quarter earnings season. Although corporate profitability and artificial intelligence investment continue to support market sentiment, the bank sees a growing gap between the strength of selected sectors and the risks facing the wider market. Its assessment suggests that sustaining the rally may require more than companies simply beating consensus estimates.

Why Strong Earnings May No Longer Be Enough

Bank of America expects earnings per share to increase 32% in the third quarter, according to the supplied report. Technology and power companies are expected to benefit from continued AI-related capital expenditure and stronger energy demand. However, the bank anticipates slower year-over-year earnings growth outside these areas, indicating that corporate performance may remain uneven.

The distinction matters because equity markets respond to results relative to expectations, not just to absolute growth. After substantial positive earnings surprises in the previous two quarters, investors may already be pricing in strong performance. Bank of America strategist Savita Subramanian argues that healthy earnings beats may therefore be insufficient to drive further gains without reassurance that growth can continue despite higher rates and commodity pressures.

How Bank of America Assesses the 2027 Risk Landscape

The bank’s concerns extend beyond the immediate reporting season. Its outlook identifies several potential sources of pressure in 2027, including higher interest rates, commodity costs, geopolitical tensions and uncertainty over the sustainability of AI spending.

Subramanian also highlights the dependence of index-level earnings per share on the durability of AI capital expenditure and the industry’s ability to monetise that investment. If companies continue committing substantial capital without generating commensurate returns, market expectations could become harder to justify. Geopolitical bottlenecks and a higher cost of capital could also slow projects, raise expenses and complicate the growth outlook.

These risks are interconnected. Higher financing costs can affect corporate investment, while energy and commodity pressures may squeeze margins. Geopolitical disruption can further complicate supply chains and infrastructure deployment. Bank of America’s warning is that the interaction between these forces may be underestimated, even while current economic and earnings data remain supportive.

What the Bank’s Warning Means for Global Wealth

For internationally diversified families and investors, Bank of America’s assessment reinforces the importance of examining earnings quality, valuation sensitivity and concentration risk. Portfolios heavily exposed to AI-linked companies may be particularly sensitive to changes in capital expenditure expectations or evidence that monetisation is taking longer than anticipated.

The bank’s outlook does not establish that a market decline is inevitable. Rather, it identifies conditions that could make future returns more difficult to sustain. Investors should monitor earnings guidance, financing costs, commodity trends and evidence that AI investment is translating into durable cash flows. For a confidential discussion regarding your cross-border banking structure and global portfolio exposure, contact our senior advisory team.