The shift towards caution has come! BofA's "Bull/Bear Indicator" soared to 9.4: the most dangerous thing is not the AI bubble, but excessively crowded positions.

The latest fund manager survey report released by Wall Street financial giant Bank of America (BofA) shows that global investors who are aggressively buying stocks should actively consider reducing their exposure to risky assets. The core judgment of the Bank of America strategy team is not that the fundamentals of global technology stocks or AI computing industries are about to enter a downturn, but that investors' extremely optimistic sentiment, bullish stock positions with strong profit expectations, and continued valuation expansion have severely overstretched the outlook for fundamental growth in the next 1-2 years, leading to a significant deterioration in the marginal risk-return of risky assets, as evidenced by fund managers' cash allocation plummeting from 4.1% to 3.6% to an extremely low level, and the bull-bear indicator reaching a pessimistic score of 9.4 out of 10. The fund manager survey, released by the team led by Michael Hartnett, dubbed "Wall Street's most accurate strategist" at Bank of America, states that asset allocators worldwide have become extremely bullish, which is usually a sign of a severe sell-off and warning signal in the market. The report also indicates that fund managers' cash allocation levels have dropped to a historic "extremely low" level of 3.6% from 4.1% last month. At the same time, the survey report also shows that fund managers' stock positions in the US market have reached the highest level since December 2024, with a net overweight position of 24%. "The Bank of America bull-bear indicator has reached an extremely bullish level of 9.4, which means investors should reduce their exposure to stocks and high-beta risk assets," wrote Michael Hartnett and the team of strategists in the report. The Bank of America index ranges from 1 to 10. "Overcrowded and highly leveraged long positions will continue to hinder further gains in risk assets such as the stock market during the summer." According to Wall Street giants such as Bank of America, Nomura, and top market research firms like SemiAnalysis, the recent sharp drop in global storage chip and AI computing infrastructure investment theme stocks is closer to extreme expectations, with extreme leveraged positions and overcrowded bullish positions undergoing a concentrated liquidation, rather than sudden collapse in industry demand. SK Hynix's profit taking after its US ADR listing, valuation discrepancies between Korean domestic stocks and US ADRs, and the concentration of leveraged funds liquidating positions have all magnified price volatility. While most institutions do not believe that AI is on the verge of collapsing, or expect cloud computing companies to cut capital spending this year, the market is approaching historic highs in US stocks, with high profit expectations, extreme bullish positions, and extreme leverage, along with geopolitical conflicts boosting oil prices and inflation risks. Market sentiment has shifted from "will fundamentals continue to improve" to "can the extent of improvement exceed extreme expectations." Therefore, the Bank of America strategy team led by Hartnett advises taking a wait-and-see approach and reducing exposure to stocks and high-beta positions as much as possible. Their latest assessment is a reminder to investors that while the long-term trend of the AI computing theme remains intact, extreme crowding in the semiconductor sector, extreme leverage, low cash buffers, overvaluation, medium-to-long-term growth prospects, and the risk of cooling capital spending could suppress the summer market rally and amplify any slight negative triggers for a valuation pullback. Global stock markets are approaching a cautious level of de-risking, with Bank of America recommending a reduction in exposure to stocks and high-beta positions The fund manager's cash allocation level has dropped from 4.1% to 3.6%, the net overweight position in global stocks has risen to 42%, net overweight in US stocks to 24%, and the bull-bear indicator has reached an extremely bullish level of 9.4, with 82% of respondents considering going long on semiconductors as the most crowded trade. Meanwhile, 48% of investors are concerned that the massive AI capital spending by mega cloud companies could be the source of the next major credit event. This is why the team led by strategist Michael Hartnett at Bank of America advises investors to reduce their exposure to risky assets, mainly due to the extremely optimistic sentiment, bullish stock positions, strong profit expectations, and the severe overextension of the valuation expansion for the fundamental growth outlook in the next 1-2 years, leading to a significant deterioration in the marginal risk-return of risky assets. After a sharp rebound from the severe decline triggered by the Iran war, US and global benchmark stock indices are currently hovering near historic highs, mainly due to investors betting on stocks benefiting from the AI computing boom, especially in AI semiconductor stocks being driven by insatiable demand for AI computing power. At the same time, the fragile ceasefire situation between the US and Iran, as well as between Israel and Lebanon, continues to cause oil price fluctuations, extreme optimism about corporate earnings, concerns about excessive capital spending by large tech companies in the AI field, and limitations on the upside potential for the S&P 500 index. Despite investors reducing their tech stock long positions this month, 48% of fund managers still believe that AI stocks are not in an AI bubble or on the verge of an AAAI bubble bursting; 61% of fund managers expect no cuts in AI capital spending by mega cloud companies this year. The Bank of America strategists say that investors' bullish sentiment about the global economy is driving them to increase their stock exposure. 41% of respondents expect a sustained "prosperous" expansion of the global economy under the AI push, with economic growth and inflation rates higher than the long-term trend curve, a proportion that has hit the highest level since February 2022 in the survey. Overall, the Bank of America survey shows that global fund managers' stock asset allocation has slightly increased from a net overweight of 38% last month to a net overweight of 42%. Some institutional investors have started increasing their exposure to high-quality, low-profits, low-crowded high cash flow stocks such as healthcare, industrials, and non-essential consumer goods, which have underperformed tech stocks year-to-date but have long-term low volatility, high-quality, stable cash flow blue-chip stocks, while reducing holdings in energy, communication, essential consumer goods, and tech stocks. Regionally, institutional investors have clearly increased their allocation to US and Eurozone stocks, while reducing their allocation to UK stocks to the most underweight level since August 2020, and cutting back on holdings in emerging market stocks. The allocation to bonds remains low, with a net underweight proportion of around 34%, slightly improved from last month's net underweight of 42%. The survey was conducted from July 2 to July 9 and covered 181 senior fund managers globally, managing a total of $484 billion in assets. From Bank of America's extreme bull value of 9.4 to multiple market halts in the KOSPI index, the Korean leverage stampede has revealed cracks in crowded trades in the semiconductor sector Michael Burry, known as the "Big Short," has been publishing pessimistic views of the impending doomsday on his Substack subscription platform, and has been heavily shorting popular AI tech stocks amid the ongoing rush of global funds into AI computing infrastructure. His recent series of high-frequency shorting operations on AI themes, driven by the AI infrastructure boom, are seen by the market as a bearish position on storage chip themes, semiconductor manufacturing equipment, and popular AI chip stocks such as AI GPU/AI ASIC, which are extremely crowded and leveraged positions, as well as a systemic doubt about the investment return expectations and overvalued fundamentals of high-tech stocks. This globally renowned top investor, who gained fame for accurately predicting the 2008 US real estate crash and subprime crisis, has also disclosed bearish positions on Nvidia and Palantir in the past through 13F filings. With the Korean stock market plummeting to multiple halts on Monday and global stock markets and popular tech stocks related to AI computing facing severe volatility, some investors are starting to agree with the view that the AI bubble is about to burst and are joining Burry's bearish camp on the AI theme. While the Bank of America strategy team led by Hartnett is not as pessimistic as the "Big Short" about the AI computing theme and the trajectory of the global stock market, they also suggest that investors should consider curbing their aggressive buying pace. The current cause for concern is not a sudden collapse in AI demand but the stock market's near-perfect pricing of growth, with bond markets pricing financing scale and return cycles increasingly cautiously. The Bank of America survey shows that fund managers' cash positions have dropped from 4.1% to 3.6%, with the bull-bear indicator reaching an extremely bullish level of 9.4; 82% of respondents believe that being long on global semiconductors is the most crowded trade, while 48% believe that the massive AI capital spending by mega cloud computing companies is the most likely trigger for the next credit event. However, 61% still expect no cuts in capital spending by cloud companies this year. This combination suggests that the market is not bearish on the AI computing industry chain, but that stock positions, profit expectations, and risk preferences are nearing their limits, and any "good but not amazing" results could trigger a compression in valuations. Warnings from the bond market have significant macroeconomic implications. The credit spread on the mega tech companies' bonds tracked by Goldman Sachs' trading desk is said to have widened by 22 basis points in a week, while stock indices and volatility markets remain unusually calm. At the same time, the estimated capital spending by mega cloud companies by 2026 is nearing $725 billion, with expenditure growing faster than operating cash flow, and Morgan Stanley estimates that global AI-related debt issuances could increase to about $570 billion. AI training cluster infrastructure, massive-scale inference infrastructure, data centers, power systems, and high-performance network cluster construction are evolving from internal cash flow projects of tech giants to macro variables affecting global investment-grade bond supply and capital costs; if credit spreads continue to widen, the pressure may not first be on AI demand but on project discount rates, external financing capabilities, and capital spending payback periods, forcing the market to shift from "who invests the most" to "who can turn computing power into revenue and free cash flow the fastest." The Korean stock market has become a high-speed stress test for this risk transmission mechanism. Samsung Electronics and SK Hynix together account for more than half of the KOSPI index weight, with the index retracing about 25% from its June peak but still up about 60% year-to-date; SK Hynix fell more than 15% in a single day, dragging the related leveraged two-times ETF down by over 30% and leading to a about 9% daily plunge in the KOSPI index. These instances highlight the use of highly leveraged single-stock products, margin financing, programmatic rebalancing, and index concentration, which indeed amplify normal profit expectation revisions as liquidity crunches. But attributing the entire decline to "pure technical selling" is also overly optimistic, as the market is also reassessing whether HBM4 shipping ramp-up, long-term contract constraints on pricing elasticity, and historical profitability can continue to exceed expectations. The silence of bullish funds does not automatically mean confirmation of a bottom but may indicate that institutions are still waiting for deleveraging and reestablishment of valuations on a safer margin. Therefore, Michael Hartnett's latest investment strategy view from Bank of America should not be understood as abandoning the AI computing infrastructure theme but as a temporary shift from high-beta, crowding, and leverage-driven AI theme bets to stable cash flow, long-term high-quality order support, and strong balance sheet non-tech stock allocations. Wall Street financial giant Jefferies suggests that investors hold high-quality, low-profit-taking, low-crowded high-cash-flow type stocks in the near term to safely navigate the possible summer tech stock sell-off. This is mainly because as the AI semiconductor crowded trading and deleveraging turmoil, as well as concerns about the revenue path for AI, intensify, market volatility is sharply increasing. As funds start to move from crowded AI computing beta to cash flow defense, the main theme of Wall Street strategies is shifting from the AI computing infrastructure to a wider range of high-quality fundamental asset allocations that have significantly underperformed tech stocks year-to-date.