BofA projects a 15% downside for EU stocks by Q2 2026 due to AI's double-edged sword nature, warning the rally might end as obsolescence risks hit sectors like insurance and software.

The bank argues the market is pricing in overly optimistic EPS growth (17% annualized over five years) that ignores AI cannibalization of margins and a massive productivity gap. Official US projections show only 0.1% growth, meaning AI's promised efficiency gains might not materialize, violently snapping valuations shut.

BofA downgrades semiconductors to Underweight, citing stretched "AI infrastructure" trade and high capex costs. It favors defensive sectors like food and telecoms, while keeping software Overweight, arguing proprietary data gives some firms a moat against AI disruption.