Fund managers alarmed by corporate investment boom as AI bubble fears grow

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The majority of global fund managers believe companies are overinvesting, with the market increasingly concerned about the sustainability of the AI ​​spending boom.

Twenty percent of fund managers surveyed by Bank of America this month said companies are spending too much on their investments — the first time that has been the majority view in data going back to 2005.

“This jump is driven by concerns about the size and financing of the AI ​​capex boom,” Bank of America analysts said.

A surge in investment to develop artificial intelligence infrastructure has been the dominant theme in the record rise for US technology stocks this year – with chipmaker Nvidia becoming the world’s first $5 trillion company last month – but growing concerns about the sustainability of that spending have caused Wall Street to retreat in recent weeks.

The Nasdaq Composite is down 4 percent this month, and U.S. futures indicate it is about to open 0.3 percent lower on Tuesday. Investors are preparing for Nvidia’s third-quarter earnings on Wednesday. The chipmaker’s stock price fell Monday after filings revealed that Peter Thiel’s hedge fund offloaded its entire holdings in the stock.

The technology spending boom is also reshaping credit markets: US companies issued more than $200 billion worth of bonds this year to finance their AI projects amid warnings of a “flood” of additional issuances.

“Public and private credit appears to have become a major source of financing for AI investments, and its rapid growth has raised some concerns,” said Anton Dombrowski, fixed income portfolio specialist at T Rowe Price.

More than 50 percent of fund managers surveyed by Bank of America, who between them manage about $500 billion in investor assets, said AI stocks were already in a bubble.

About 45 percent saw this as the biggest “tail risk” to markets and the global economy, up from 33 percent last month, and overshadowing other threats such as inflation or the consumer crisis in the United States.

Despite investors’ concern about the level of spending, the broad measure of investor sentiment – derived from cash levels, stock allocation and economic growth expectations – rose to its highest level since February of this year, shortly before Donald Trump shocked markets with his global tariffs.

Average investor allocations to cash fell to just 3.7 percent of portfolios, which Bank of America noted is a level that has historically been followed by a decline in stock markets and a rise in government bonds in the following three months.