BofA says investors are increasingly worried about an AI boom-bust cycle

Investing.com -- Investors are concerned that the AI spending boom could end in a bust, but most plan to stay invested for now, according to Bank of America.

BofA's European equity strategists said AI capital spending took up 80% of discussion time in recent client meetings in the U.S., Switzerland and Scandinavia. Rates took up 15% and the Middle East conflict 5%.

Clients are said to have noted that most past technology-driven spending booms, such as the 1990s tech boom and the 1870s railroad boom, ended in a bust.

Many shared BofA's concern that fierce competition among AI model developers is driving down prices and that kind of price pressure has hurt spending booms in the past.

However, most saw few signs of an imminent turn. BofA noted that consensus forecasts for U.S. hyperscaler capital spending over the next 12 months are close to $1 trillion and still rising.

The bank added that most clients plan to stay positioned for more spending, "highlighting that failing to do so would entail significant career risks."

"Yet, many suggested that they were prepared to switch positioning on any signs that the boom was starting to run out of fuel," the strategists wrote.

Clients were also split on rates, said BofA. A slight majority expects yields to keep rising, while a small but growing group agrees with the bank that rates will fall again.

BofA remains negative on European equities, seeing the Stoxx 600 falling about 10% to 580 by the second quarter, and European cyclical stocks falling another 6% relative to defensive stocks.

It warned that any obstacle to AI spending could hurt growth and earnings. These obstacles include competition, financing costs, power shortages and political opposition to data centers.

The bank favors consumer staples and quality stocks. It sees European banks as the most stretched cyclical sector.

Original Article

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