The risk of an AI bubble has sharply tightened for global fund managers, up more than 400 per cent in the past two months.
The latest monthly Bank of America survey questioned 198 fund managers with US$540 billion in assets under management between 5-11 June.
When asked about the biggest tail risks they saw in markets, 28 per cent of respondents identified an “AI bubble”.
This is up more than 400 per cent since April when the figure stood at just at 5 per cent and from 11 per cent in May.
When questioned further on what stage they believed AI stocks are currently in, 56 per cent said they are in a ‘boom’ and 21 per cent said they are in ‘euphoria’, defined as the period with a price/value danger zone.
Some 9 per cent said they were in the right stage to start taking profits.
Meanwhile, being long global semiconductors – the physical bedrock of AI – was cited as the “most crowded trade” by 80 per cent of respondents, the highest in the survey’s history.
While investors remain overweight technology equities, they have started to reduce their positioning during the month and are currently holding a net 26 per cent overweight to technology, down from 33 per cent overweight last month.
The largest overall tail risk was second wave inflation, cited by 34 per cent of respondents, but this was down from 40 per cent last month. This refers to the persistent, renewed price pressures driven by supply constraints, geopolitical energy shocks and wage price spirals.
A net 34 per cent of expect higher short-term rates, the highest level since Sep 2022 and a net 45 per cent predict higher CPI.
Looking at the economy more broadly, investors remained bullish but by a slighter smaller amount in May as a result of greater cash weightings which are standing at 4.1 per cent. Fund manager sentiment is down from 6.6 to 6.0 based on cash levels, equity allocations and global growth expectations.
Only 1 per cent are expecting to see a weaker economy in the next 12 months, down from 14 per cent in May.
Equity allocations dipped from net 50 per cent overweight to net 38 per cent with reductions seen in global equities, European equities and technology stocks.
