BofA survey: AI bubble is biggest 'tail risk' for fund managers
Although global fund managers are 'uber-bullish' thus far in February, a number of them remain concerned about the potential of a bubble in the artificial intelligence sector, according to the latest survey of fund managers from Bank of America.
The closely watched monthly survey from BofA found that 25% of those surveyed see the AI bubble as the biggest tail risk, followed by inflation (20%) and the "disorderly rise in bond yields" (17%).
In January's survey, the top tail risk was geopolitical conflict (28%), followed by the AI bubble (27%) and the disorderly rise in bond yields (19%).
Shares of Big Tech stocks have been plummeting this month as investors digest the amount of money that some of the largest companies in Silicon Valley are planning to spend.
According to the Financial Times, Meta Platforms (META), Alphabet's Google (GOOG), Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN) are projected to spend an estimated $660 billion combined this year on AI, which is a capex that's more than the GDP of Israel.
“The capex is breathtaking,” Jim Tierney, head of the concentrated US growth fund at AllianceBernstein, told the FT.
Concerns over this level of spend have been enough to send Microsoft's stock plummeting nearly 18% this year. Amazon's stock is also down nearly 13% for the year, while Alphabet has fallen 3.5% and Meta has dropped just over 3%.
Growing dispersion in the AI trade
In a podcast last week, Goldman Sachs Research's Ryan Hammond said that “after a couple of years of AI being the growth engine for S&P 500 returns, (and the) broader markets, to us the AI trade just looks a lot more complicated in 2026."
That's because investors "are taking a closer look at monetization of AI and the fundamentals of the underlying business" which will send some AI-related stocks up and others down.
"If a company was able to message to investors that they are monetizing AI, that could be through their cloud business, that could be through their ad business, then those stocks responded favorably because investors have confidence in the return on that investment,” Hammond said.
“If you saw some pressure in those estimates for those businesses or their sales or earnings, then you saw those companies come down.”
Ultimately it will come down to how a company's capex is translating into revenue, Hammond added. But as investors start scrutinizing the capex versus the revenue, the AI trade is going to be a lot less cohesive.
"To us it looks like the group is just going to have a lot more dispersion,” Hammond said. “No longer is it going to be one big group of stocks powering the index higher. You will see periods where some stocks are doing better or worse than others.”
In other findings from the BofA survey, the most crowded trades for global fund managers in February were long gold (50%), long Magnificent 7 (20%) and short US dollar (12%).
Global fund managers are also favoring basically every region outside of the US for their equity allocations in February. US equities fell to a net underweight of 22% for this month, down from a 3% underweight in January and a 6% overweight in December.
In terms of the economy, 39% of those surveyed expect strong growth in 2026, compared to 38% who thought so in January.
Meanwhile, as for President Trump's nomination of Kevin Warsh for the next Fed chair, 38% of the global fund managers polled expect that it will lead to higher US Treasury yields and a lower US dollar. Only 15% expect the Warsh nomination to lead to a higher dollar.