RBC WARNS AI HYPE POSES EARNINGS RISKS

Calvasina highlighted risks tied to what she calls 'AI froth'—inflated expectations around artificial intelligence investments that could pressure earnings across the market. While tech giants dominate AI capex discussions, her research focuses on spending patterns among smaller S&P 500 constituents. The key concern: companies outside the top 10 by market cap are ramping technology spending without clear near-term revenue offsets. This dynamic could compress profit margins as firms invest heavily in AI infrastructure and capabilities. RBC's analysis suggests earnings risks may intensify if AI investments fail to deliver expected returns quickly. The firm is monitoring whether mid-cap and smaller tech players can justify their capital expenditures through tangible business improvements. Calvasina's outlook underscores growing skepticism about AI's immediate profitability—even as investment in the technology accelerates industry-wide.