Bank of America fund manager survey: US stock allocation turns overweight for the first time in 8 months, over half believe there is an AI bubble.

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The latest Bank of America fund manager survey shows that global fund managers' concerns about AI stocks have risen sharply, 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 the highest level in eight months, reflecting the complexity of market sentiment.

This survey result marks a significant shift in investor attitudes. Compared with nearly half of respondents last month who were unconcerned about tech stock overvaluation, in the October survey the proportion holding this view increased significantly. Concerns that global stock markets are overvalued also peaked in the latest survey.

Despite bubble concerns, fund managers have still increased their allocation to U.S. stocks, demonstrating relative optimism about the U.S. market. Bank of America strategist Michael Hartnett pointed out that worries about the AI bubble and private credit markets are curbing “full-on bullish” market sentiment.

This survey was conducted from October 3 to 9, covering 166 participants managing $400 billion in assets, at a time when U.S. stocks were frequently hitting record highs.

AI Bubble Concerns Peak

The BofA survey shows that about 54% of participants believe tech stocks are too expensive, a significant rise from last month. In the 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 over a resurgence of inflation, loss of Fed independence, and dollar depreciation. This reflects investors’ doubts about the sustainability of the current AI-driven market rally.

The Nasdaq 100 Index has risen 18% so far this year, raising its forward P/E to nearly 28 times, above the 23-times average of the past decade. Some market participants question whether current valuations have surpassed the earnings prospects of the sector.

U.S. Stock Allocations Rising Against the Trend

Despite concerns about an AI stock bubble, fund managers’ equity allocations still reflect a degree of optimism. The survey shows that exposure to U.S. stocks has risen to an eight-month high, returning to levels seen before concern over tariffs re-emerged.

Concerns about a recession have fallen to the lowest level since early 2022, indicating that investors have regained confidence in U.S. economic fundamentals. Cash holdings have declined, suggesting funds are flowing back into risk assets.

This allocation shift echoes market performance. U.S. stocks have repeatedly hit new highs driven by enthusiasm over AI spending and expectations of related productivity gains, with tech stocks as the main driving force.

Market Sentiment Remains Complex

Bank of America strategist Michael Hartnett said that concerns about an AI bubble and uncertainty in the private credit market are holding back "fully bullish" sentiment. This cautious optimism is reflected in fund managers’ investment behaviors.

Recently rekindled worries over trade tensions have further affected market sentiment. The Nasdaq 100 Index has led losses during the U.S. stock downturn, with related futures falling more than 1% on Tuesday.

Although Goldman Sachs strategists believe it’s still too early to worry about a tech bubble, fund managers’ elevated concerns indicate that investors are reassessing the validity of current valuations and that the market may face greater volatility.

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