Citigroup warns AI slowdown could pressure stock market gains built on earnings optimism

The trade that powered most of this year’s stock market rally just got a warning label from one of Wall Street’s biggest banks. Citigroup analysts are flagging that a slowdown in AI model development could trigger downward earnings revisions, the very engine that has been propelling US equity gains through 2026.

On September 13-14, AI-linked stocks including SoftBank and Intel sold off after Anthropic CEO Dario Amodei and OpenAI’s Sam Altman both called for a more measured pace in AI development.

The earnings revision machine

AI-driven earnings growth has been the critical pillar supporting US stock performance this year. Companies across the technology spectrum, from chipmakers to hyperscalers, have benefited from investor optimism around continued AI capability gains and the massive capital expenditures flowing into the sector.

Citigroup’s research, spanning from mid-2025 through 2026, has consistently highlighted how vulnerable equity markets are to delays in AI productivity benefits actually showing up in corporate bottom lines. The bank’s strategists have described the current market setup as a “boom” rather than a bubble. The analysts specifically flagged risks of multiple compression in sectors like software, where valuations have been stretched by expectations of AI-augmented growth.

Why the AI labs are pumping the brakes

Amodei and Altman, arguably the two most influential figures in frontier AI development, have adopted a unified stance on pacing. Their public comments introduced fresh uncertainty into a market that had been pricing in relentless, compounding AI progress.

The immediate fallout was visible across the tech stack. Sell-offs hit companies that had been riding the AI investment wave, from semiconductor manufacturers supplying the compute infrastructure to cloud providers scaling their AI services.

What investors are watching now

The anticipated productivity improvements from AI have been priced into the market with a confidence level that leaves little room for disappointment. If those gains do not materialize as quickly or as substantially as expected, the implications for stock performance could extend well beyond the tech sector into the broader indices that have become increasingly weighted toward AI beneficiaries.

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