Bank of America fund manager survey: US stock allocation has shifted to overweight for the first time in 8 months, with more than half believing that AI is in a bubble

The latest Bank of America fund manager survey shows that global fund managers' concerns about artificial intelligence stocks have surged, with a record 54% of respondents believing that AI stocks are in a bubble. Meanwhile, fund managers' allocation to U.S. stocks has risen to its highest level in eight months, reflecting the complexity of market sentiment.

This survey result marks a significant shift in investor attitudes. Compared to last month, when nearly half of the respondents dismissed concerns about overvaluation in tech stocks, the proportion of those holding this view has risen sharply in the October survey. Concerns about global stock markets being overvalued have also peaked in the latest survey.

Despite the bubble concerns, fund managers have increased their allocation to U.S. stocks, indicating relative optimism about the U.S. market. Bank of America strategist Michael Hartnett pointed out that concerns about the AI bubble and the private credit market are suppressing "fully bullish" market sentiment.

The survey was conducted from October 3 to 9 and included 166 participants managing $400 billion in assets, coinciding with multiple record highs in U.S. stocks.

AI Bubble Concerns Reach Peak

The Bank of America survey shows that about 54% of participants believe tech stocks are overvalued, a significant increase from last month. In the previous September survey, nearly half of fund managers disagreed with concerns about tech stock valuations.

The AI bubble is seen as the biggest tail risk, followed by concerns about rising inflation and the loss of independence of the Federal Reserve and the depreciation of the dollar. This reflects investors' doubts about the sustainability of the current AI-driven market rally.

The Nasdaq 100 index has risen 18% this year, pushing its forward price-to-earnings ratio to nearly 28 times, above the 23 times average level of the past decade. Some market participants question whether the current valuations have surpassed the earnings prospects of the sector.

U.S. Stock Allocation Rises Against the Trend

Despite concerns about a bubble in AI stocks, fund managers' stock allocations still reflect a degree of optimism. The survey shows that exposure to U.S. stocks has risen to its highest level in eight months, returning to levels before tariff concerns resurfaced.

Concerns about an economic recession have dropped to their lowest level since early 2022, indicating a recovery in investor confidence in the fundamentals of the U.S. economy. Cash holdings have decreased, suggesting that funds are flowing back into risk assets.

This allocation change corresponds with market performance. U.S. stocks have repeatedly hit new highs driven by enthusiasm for AI spending and expectations of related productivity gains, with tech stocks being the main driver.

Market Sentiment is Complex and Changeable

Bank of America strategist Michael Hartnett stated that concerns about the AI bubble and uncertainties in the private credit market are suppressing the market's "fully bullish" sentiment. This cautiously optimistic attitude is reflected in the investment behavior of fund managers.

Recent concerns about renewed trade tensions have further impacted market sentiment. The Nasdaq 100 index led the decline in U.S. stocks, with related futures dropping over 1% on Tuesday.

Although Goldman Sachs strategists believe it is too early to worry about a tech bubble, the concerns of fund managers indicate that investors are reassessing the reasonableness of current valuation levels, and the market may face greater volatility