Most Investors Say AI Stocks Are in a Bubble, BofA Poll Shows

A recent Bank of America survey indicates a record 54% of global fund managers now believe artificial intelligence stocks are in a bubble, marking a significant shift from prior sentiment and coinciding with peak fears of overall global stock overvaluation. Despite this, fund managers' allocation to US equities reached an eight-month high, and recession concerns subsided to their lowest since early 2022. However, unease over AI valuations and private credit, alongside renewed US-China trade war worries, are tempering overall bullish sentiment, with the AI bubble identified as the top tail risk among participants.

Analysis

A recent Bank of America survey indicates a record 54% of global fund managers now perceive artificial intelligence stocks as being in a bubble, a significant reversal from prior sentiment. This heightened concern aligns with overall global stock overvaluation fears reaching a peak among participants. The Nasdaq 100's 18% year-to-date rally has driven its forward P/E to nearly 28, above its 10-year average of 23, raising questions about current valuations.

Despite these valuation anxieties, fund managers' US equity allocation has climbed to an eight-month high, and recession concerns have receded to their lowest point since early 2022. However, BofA strategist Michael Hartnett notes that unease over AI valuations and the private credit market, alongside renewed US-China trade war worries, are tempering "full-bull" sentiment. The Nasdaq 100 has recently led declines, with futures down approximately 1% on Tuesday, reflecting this cautious mood.

The survey identifies an AI bubble as the top tail risk, followed by inflation resurgence and concerns regarding Federal Reserve independence and dollar debasement. While Goldman Sachs strategists suggest it is too early to fear a tech bubble, the widespread apprehension among fund managers, who collectively manage $400 billion in assets, signals a notable divergence in market outlooks.

Key Decisions for Investors

• Closely monitor AI stock valuations and the Nasdaq 100's P/E ratio for signs of overheating, given record fund manager concerns about a potential bubble.
• Re-evaluate portfolio exposure to technology and growth stocks, considering potential downside risks from renewed US-China trade tensions and broader market overvaluation.
• Remain vigilant regarding macro tail risks such as inflation resurgence and private credit market stability, which could temper overall market sentiment despite reduced recession fears.