Too high to withstand the cold? Bank of America fund manager survey: Over half of managers believe AI is still in a "boom period," but there is "taking chips off the table at high levels."

Too high to withstand the cold? Bank of America fund manager survey: Over half of managers believe AI is still in a "boom period," but there is "taking chips off the table at high levels."

Global fund managers remain highly optimistic about the artificial intelligence (AI) investment theme. Most respondents believe that the sector is still in a “boom phase” driven by “fear of missing out” (FOMO). However, as valuations rise and trading crowding reaches historic highs, signs of profit-taking at market peaks have emerged, and investors are starting to tactically reduce their risk exposure to tech stocks and global equities.

According to Chase Wind Trading Desk, the latest monthly fund manager survey by Bank of America's star strategist Michael Hartnett shows that 56% of respondents define the current AI stock cycle stage as a "boom phase". At the same time, as much as 80% of respondents said that "going long global semiconductors" is currently the most crowded trade, a proportion that has set the highest record in the survey's history.

Facing potential overheating risks in the market, institutional investors are adopting “get off the table” strategies to lock in profits. Survey data shows that fund managers have significantly reduced their global equity overweight allocation from 50% last month to 38%, and their technology stock overweight from 33% to 26%, reflecting that the market is tending toward caution before summer, with a notable increase in defensive moves.

Additionally, the rise in macro tail risks is prompting capital reallocation. Investors are not only slightly raising their cash holdings, but in regional markets such as Asia-Pacific, funds are rotating from crowded AI-beneficiary targets to defensive sectors such as finance and telecom, highlighting a subtle balance between pursuing growth and managing downside risk.

AI Sentiment Surges Amid “Crowded Trade” Concerns

Among global fund managers who manage $465 billion in assets, the AI theme remains the core driving force in the market.

The survey shows that more than half (56%) of investors believe that AI stocks are currently in the “boom” phase. This phase is characterized by rising market momentum, with the “fear of missing out” attracting more participants.

In contrast, only 21% of respondents believe the sector has entered the extreme valuation “euphoria” phase, and another 9% believe it is in the “profit-taking” phase, where large investors are beginning to sell.

Despite the overall positive sentiment, concerns about concentration in the technology sector are intensifying. Four out of five (80%) respondents consider buying and holding global semiconductor stocks as the most crowded trade right now.

This figure not only topped the list for two consecutive months but also reached the highest value in the history of Bank of America’s fund manager survey. Moreover, going long the "Magnificent 7" tech giants is also seen as a crowded trade by 12% of respondents.

Institutions Tactically Reduce Positions, Cash Levels Tick Up

Amid concerns about crowded trades and potential bubbles, fund managers are showing a clear defensive tendency in overall asset allocation.

The Bank of America report points out that while investors remain generally bullish, their bullishness has cooled compared to May. Respondents cut their net overweight allocation to global equities by 12 percentage points to 38%, and reduced their net overweight in the technology sector to 26%.

Meanwhile, the average cash level among investors rose slightly from 3.9% in May to 4.1%. Hartnett noted in the report, this signals that traders are taking some chips off the table before summer arrives.

In terms of risk appetite, the awareness of tail risk in the market has also changed significantly.

34% of fund managers now see “second wave of inflation” as the largest tail risk to the market, while the proportion of respondents who view the “AI bubble” as the biggest risk has risen sharply to 28%, far higher than two months ago at 5%. In contrast, worries about geopolitical conflict have plunged from 44% two months ago to just 12%.

Divergence in Asia-Pacific Markets, Capital Rotates to Defensive Sectors

In Asia-Pacific markets, investor hedging strategies against AI trading downside risks show clear divergence.

Bank of America’s Asia fund manager survey indicates that 41% of respondents chose not to hedge and continued to overweight AI trades; but equally, 41% of respondents chose to reduce risk by shorting or underweighting crowded AI beneficiaries, or rotating to other links in the AI value chain and defensive sectors to cope with potential volatility.

In terms of sector allocation, funds in the Asia-Pacific region (excluding Japan) are experiencing significant rotation. In June, investors moved out of materials and consumer discretionary sectors and shifted to financial services and telecom sectors. Currently, fund managers’ overweight in tech hardware has surpassed semiconductors, and financial services have become the new hot spot sector.

For specific markets, Taiwan is still seen as the biggest beneficiary of the AI cycle, recognized by 41% of respondents. In the Japanese market, earnings expectations are increasingly becoming the key driving factor for the stock market, with tech hardware and banks tied as the second most favored sectors in Japan, only behind semiconductors.

Despite signs of position adjustments at high levels, only 9% of investors globally believe that the positive impact of AI on equities is already fully priced in, showing the continuing long-term appeal of the theme.

 

 

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