BofA Sees AI Boom Parallel to 1990s Internet, Predicts Trillion-Dollar Investment Surge

With investors regaining composure and U.S. tech stocks experiencing slowed growth and occasional pullbacks, skepticism around the AI boom is mounting. However, Bank of America (BofA) asserts that the AI frenzy is still in its nascent phase, drawing a parallel to the internet’s development in the 1990s.

BofA analysts in a recent report stated, “Skeptics argue that the revenue potential of generative AI (GenAI) is insufficient to justify the current level of AI infrastructure investment.” They emphasized, "But remember, beyond the initial consumer use cases, the internet spawned thousands of use cases and companies," the report added.

Amidst mounting skepticism, BofA maintains that the AI boom is akin to the early days of the internet. The report comes against a backdrop where investors have been pouring funds into the AI sector, expecting companies to reap benefits in efficiency and productivity. Disappointment in immediate returns has fueled doubt about AI's promises.

BofA's report, based on a survey of over 3,000 company equity analysts and macro strategists, positions AI as the third major technology cycle of the past 50 years, following the personal computer in 1981 and the internet in 1994. The launch of ChatGPT in November 2022 marked the beginning of this cycle.

Unlike previous tech booms that took 15 to 30 years to gain widespread adoption, AI's impact may materialize more rapidly. "Generative AI could trigger a technological revolution, disrupting every industry and transforming the global economy in the next 5 to 10 years," said the report.

BofA analysts believe investors are underestimating AI's long-term impact while overestimating its short-term potential—a common characteristic of tech booms. They foresee AI-related capital expenditures exceeding $1 trillion in the coming years, likening the current stage to the internet era of 1996.

Additionally, the report highlighted that investments in companies like OpenAI, Anthropic, and Inflection AI are merely a prerequisite for developing GenAI applications, most of which are still in the testing phase and require time to mature.

The strategists predict that AI will drive substantial profit margin growth for most companies in the sector, with chip and software businesses expected to see profit margin increases of approximately 4.8% and 5.2% over the next five years, respectively.