The impact of artificial intelligence (AI) on corporate earnings has been a topic of significant interest in recent years, with many predicting that it will be a major driver of growth in the coming years. However, as we delve deeper into the data, there are signs that this boost from AI may not be sustainable in the long term.

According to our analysis, AI has accounted for nearly half of S&P 500 earnings growth this year, with investments in AI technology and software driving much of this growth. However, as capex spending continues to grow, we estimate that this tailwind will begin to fade next year, transitioning from an earnings boost to a marginal drag by 2028.

There are several factors contributing to this shift. Firstly, as capex growth slows, the impact of AI investment on earnings is likely to decline. Secondly, depreciation expenses will begin to mount, further eroding the profitability of AI-related investments. Finally, there is a risk that AI capex may exceed estimates once again, leading to even greater downside risks for corporate earnings.

To better understand the potential impact of these factors on S&P 500 profits, we have outlined several upside and downside scenarios in our analysis. These include the possibility of continued high levels of AI investment, a slowdown in capex growth but still above-trend levels of AI spending, and a more severe slowdown in both categories.

While the future of AI is uncertain, it is clear that its impact on corporate earnings will not be sustainable in the long term. As such, investors and analysts alike must carefully consider these factors when making predictions about the future of the S&P 500 and beyond.