Even fund managers say the AI stock boom is a bubble, BofA survey says

Concerns have been rampant in recent weeks that artificial intelligence stocks are in a bubble. Now, even institutional fund managers are getting worried.

About 54% of fund managers polled by Bank of America in October said tech stocks were overvalued, a jump from the previous month when about half expressed that sentiment. Moreover, 60% said global equities as a whole are too expensive.

Stocks have soared this year amid a flurry of AI announcements. In particular, a string of huge deals between OpenAI and firms like Nvidia, Oracle, AMD and Broadcom pushed tech stocks to record highs.

But the circular nature of some of these deals — and the huge valuations that come with them — have also fueled worries that the company is adopting a model similar to the vendor financing that was part of the dot com crash at the start of the millennium. In vendor financing, a company provides financial support to a customer buying its products.

“​​The experience of a quarter of a century ago [when the dot-com bubble burst] won’t necessarily be repeated, but the scale of recent investment increases by tech firms already indicates that they are taking significant risks,” analysts with Oxford Economics research group wrote in a recent note.

In the Bank of America survey, a monthly poll of institutional fund managers, AI was cited as the biggest tail risk, more than inflation and geopolitics. “Long gold” was named as the busiest trade.

A second wave of inflation and the prospect of the Federal Reserve losing its independence  were the next most significant risks according to those polled, BofA strategist Michael Hartnett wrote, while noting that the perceived trade war risk had "eased significantly since peaking in April," when a record 80% picked it as the biggest concern.

It comes after even Sam Altman, OpenAI chief executive, warned that the AI frenzy is spilling past reason into bubble territory over the summer. When asked in August whether investors are collectively overhyping the AI space, Altman said, “Yes,” and compared the current surge of excitement with the dot-com boom.