Exploring real revenue in AI
Perspectives from BofA Global Research’s Leading Analysts
January 20, 2026
Justin Post, Senior Research Analyst, Internet, Large, Mid & Smallcap
Dominant Internet sector theme: AI
We expect AI to be the dominant theme again in 2026, underscored by rapid investor sentiment changes on open source modes, search, Agentic AI and AVs in 2025. We think “peak optimism” for AI might not occur until highly visible AI decacorns start going public, which we think can be a sector valuation catalyst. Top AI sector themes for 2026 are AI capex returns, Agentic AI adoption, Open Internet traffic disruption and OpenAI’s ad ramp.
$1tn+ AI revenue opportunity worth pursuing
Some of the largest revenue opportunities that are driving AI investment include Cloud, Digital Advertising and AI Subscriptions. These opportunities include: 1) approximately $500bn in incremental Cloud revenue (per IDC), driven by accelerated enterprise adoption of AI workloads; 2) roughly $400bn in incremental Digital Advertising revenue as AI improves targeting, measurement and ROAS, expanding overall advertiser budgets; and 3)
More than $200bn in incremental AI Subscription revenue as enterprises and consumers adopt paid AI tools and agentic services across productivity, search, shopping and entertainment.
Unprecedented investment in the AI opportunity
Industry capex is expected to reach unprecedented levels, with combined capex for the major hyperscalers estimated to grow from $154bn in 2023 to over $600bn in 2027. A top mega-cap investor question is potential future returns on capex investment. Estimating future ROI using traditional return measures is inherently difficult given uncertainties about capex funding, industry infrastructure capacity (an overbuild would lower returns), future innovation in AI models, token pricing and macro conditions. However, Street estimates for capex, revenues, margins and operating cash flow can provide an interesting framework for estimating potential returns. Our work suggests that estimates call for declining returns on AI capacity investment vs. historical capital investment, but expected sector returns remain constructive based on incremental EBITDA generation.
Growth in traffic to AI platforms
AI-powered search tools like ChatGPT, AI mode, Perplexity, Grok, etc., are enhancing the user experience by delivering more relevant, context-aware answers with fewer steps. This step change in utility has increased the value in the “information retrieval” category, driving more frequent usage and deeper engagement across a wider set of use cases (e.g., shopping, research, productivity tasks). The availability of AI platforms is driving significant change in user activity, shifting usage from browser-based activity to app based and opening doors to new competition in the search, O/S, browser, shopping and ad tech categories, among others. The change is also unlocking incremental monetization opportunities across consumer subscriptions, API usage, outcome-based ad models and enterprise workflow integrations.
Evolution of Agentic AI
We expect agentic AI to play an even larger role in 2026 as the technology improves and is integrated more broadly across the Internet and as user adoption accelerates. Agents will drive changes across all transaction-based Internet companies, and we expect the biggest impact in eCommerce and travel as Agents will improve the shopping process and outcomes.
As a result, differentiated pricing, selection and shipping speeds will become even more valuable as AI Agents become more “aware.” Incumbents in eCommerce and travel will have to match capabilities offered by AI aggregators to maintain direct traffic, setting up an arms race in agentic capabilities.
Green shoots on machinery’s horizon?
Growth is a key theme in 2026 for the machinery sector. There are green shoots in core machinery markets, data center build-outs and power generation.
