Bank of America Securities chief strategist Michael Hartnett said in a new note on Aug. 15 that the best strategy in the current AI bubble is to go long AI technology leaders and long-overlooked beaten-down assets at the same time, while shorting AI bonds. He said that mix is designed to capture two-way gains in what he described as the final blow-off stage of a nominal GDP bubble.
BofA’s bull-and-bear indicator edged down from 9.7 to 9.3. It still sits in an extremely bullish zone and continues to flash a sell signal. Since that signal was issued in May, however, global equities have continued to post gains.
Flows are shifting while equity exposure climbs
The report said capital is moving structurally into gold and commodities. Tech stocks, by contrast, recorded their largest weekly outflow in seven weeks. At the same time, private client stock positioning has reached a record high.
Private client data showed equity allocation rose to an all-time high of 66.4%. Cash holdings fell to the lowest level on record, while bond allocations dropped to their lowest level since 2022.
Hartnett’s read on the late stage of the bubble
Hartnett said past bubbles show that, before the leading segment peaks, spillover effects often lift emerging markets or oversold cyclical assets. In the current setup, he said the consumer sector is the most likely candidate to follow that pattern.
He also argued that more than $1 trillion in AI capital expenditure, combined with negative cash flow, will create heavy issuance pressure for related bonds. That is a central reason behind his call to short AI bonds.
BofA keeps its cross-asset framework
BofA said it is maintaining its broader asset-allocation framework of “avoid bonds, avoid the dollar, all in on AI.” The note added that three factors could restrain the bull market from moving higher: surging bond yields, a more cautious turn in voter sentiment, and broadly crowded long positioning.
With U.S. Treasury debt nearing $40 trillion and debt-servicing costs still climbing, BofA said the path of yields is the biggest variable. The firm also said intervention in the dollar-yen exchange rate by the U.S. and Japan has sent a signal that policymakers do not want the 10-year Treasury yield to break above 5%.
Gold hedge and Hong Kong property call
Under its “avoid the dollar” theme, the report recommended a long position in gold as a hedge. It also expressed a positive view on Hong Kong property, saying the sector is valued at about 12 times and remains at levels seen 30 years ago.
November election seen as a key variable
Looking ahead, BofA identified the November U.S. midterm elections as a key political variable. If Republicans hold the Senate and the Texas governor wins re-election, AI risk assets could accelerate into a blow-off phase in 2027, the report said. If not, equities, the dollar and yields could face a sharp adjustment.