RBC Capital Markets Increases S&P 500 Earnings Haircut to 10%

Michael Calvasina, a strategist at RBC Capital Markets, adjusted earnings models for the S&P 500 by increasing the haircut to bottom-up consensus estimates from 5% to 10%. This change accounts for potential froth in artificial intelligence stocks, alongside pressures stemming from inflation and conflict in Iran.

Calvasina observed that capital expenditure growth among the top 10 market cap AI leaders has peaked. However, he noted that the remaining 490 stocks in the index are currently in the early stages of a capital expenditure build-out cycle.

He suggests that investors shift their focus away from the largest AI firms toward these other companies. As an example, he cited the insurance sector, where AI is driving IT upgrades and derivative spending.