A recent monthly fund manager survey from Bank of America indicates that the rally in artificial intelligence (AI) stocks is expected to continue, with most investors believing the psychological phenomenon of 'fear of missing out' (FOMO) still drives this trade theme. The survey, conducted between June 5 and June 11, covered investors managing a total of $465 billion in assets.

Boom, Not Euphoria

The survey results show that approximately 56% of global fund managers chose the term 'boom' to describe the current phase of the AI cycle. This typically refers to a market rally that continues to build momentum, attracting more investors who are afraid of missing out. Only 21% of respondents believe the sector has entered a 'euphoria' stage, where stock valuations are pushed to extreme levels. A further 9% described AI as being in a 'profit-taking' phase.

These findings echo recent market performance. Despite a sharp sell-off in the US AI sector on June 5, which saw the Philadelphia Semiconductor Index plummet over 10% and the Nasdaq fall more than 4% in a single day, the market has since rebounded sharply. On Monday, the Philadelphia Semiconductor Index surged 5.45% to close at 14,099 points, breaking through previous all-time highs to set a new record. Stocks like Micron Technology, ARM, and Intel have all gained well over 200% year-to-date.

Semiconductors as the Ultimate Crowded Trade

However, the survey also reveals deeper investor concerns regarding the technology sector. Four out of five (80%) respondents believe that buying and holding global semiconductor stocks is currently the most crowded trade in the market, setting a new record high for this survey. This signal reflects an extreme level of capital concentration in AI hardware.

Cash holdings are also at historically low levels, indicating institutional equity allocations remain high and overall risk appetite has not significantly diminished. Despite the strong AI narrative, investors have begun making defensive portfolio adjustments. Overall, fund managers slightly reduced their overweight positioning in the technology sector from 33% to 26%, and their global equity overweight fell from 50% to 38%.

Bubble Debate Intensifies

This has fueled ongoing debate about an AI bubble. The bank's chief strategist, Michael Hartnett, previously issued a strong warning, stating that the current AI-driven market bubble is the largest since the 19th-century railway bubble. He noted that if upcoming tech giants like SpaceX and OpenAI are combined with existing AI leaders, the market concentration of the AI sector would reach about 48%, surpassing the concentration levels seen during the Roaring Twenties, the Nifty Fifty of the 1970s, and the TMT bubble of the 1990s.

During the survey period, SpaceX completed a historic IPO on the Nasdaq. The unprofitable company went public with a valuation of $1.8 trillion, and its stock has continued to rise sharply post-listing, closing up 19.6% on June 15 with a total market capitalization reaching $2.5 trillion, further heightening market concerns about an AI and tech stock bubble.

Concurrently, legendary hedge fund manager Seth Klarman, often called the 'Boston Buffett,' recently issued a stern warning about the AI investment frenzy, stating that market valuations show clear bubble characteristics. His fund is completely avoiding investments in large language model companies like OpenAI and Anthropic.