We propose the AI Narrative Gap as a novel firm characteristic—the systematic divergence between a firm’s AI strategic narrative intensity and its subsequent AI capital expenditure commitment—and document its capital market consequences. Using Chinese A-share listed firms from 2015 to 2022, we show that firms with a wider AI Narrative Gap attract significantly more optimistic and less accurate analyst earnings forecasts. These distorted expectations, in turn, predict lower subsequent stock returns, lower industry-adjusted abnormal returns, and weaker future accounting performance. A double-sort portfolio placing firms simultaneously in the highest tercile of the AI Narrative Gap and highest tercile of analyst optimism earns a mean return 22.8 percentage points below that of the lowest tercile on both dimensions (t = −5.10). The return reduction in the AI Narrative Gap coefficient is attenuated but not eliminated after controlling for optimism, consistent with a partial expectation-distortion channel. Collectively, these results establish the AI Narrative Gap as a cross-sectionally informative firm characteristic that captures the credibility of a firm’s AI strategic identity, with systematic implications for analyst expectations and asset prices.

This paper examines whether sell-side analysts struggle to cope with macroeconomic uncertainty. We find that analysts issue more accurate earnings forecasts when facing higher economic policy uncertainty, which conflicts with the conclusions in the US. We provide a novel explanation for this finding and exclude the view that forecast accuracy improvement comes from analysts’ efforts to actively collect private information through site visits. Further evidence supports that heuristic cognitive bias and emotional framing effect hold back analysts’ tendency to optimism in China, resulting in higher forecast accuracy. As to why Chinese analysts do not work harder but issue more accurate forecasts, we suggest that it is mainly due to the different market regimes faced by analysts in the two countries. Our study sheds light on how macroeconomic uncertainty affects analysts’ unethical behavior and explains the cognitive processes involved.