BofA Just Flashed a Rare Sell Signal — Here’s What History Says Happens Next to AI Stocks

TLDR

• Bank of America’s Bull & Bear Indicator hit 8.0, triggering a contrarian sell signal for risk assets.
• BofA strategist Michael Hartnett warned AI stocks could push market concentration to 47–48% of U.S. market cap, surpassing dot-com bubble levels.
• Hedge funds bought tech stocks at the fastest pace in nearly three months last week, per Goldman Sachs.
• Rising bond yields and inflation are flagged as the biggest threats to the ongoing AI rally.
• Bitcoin is down more than 11% this year while oil is up over 70%, showing a split in how different assets are performing.

Bank of America strategist Michael Hartnett issued a warning this week that the U.S. stock market’s obsession with artificial intelligence may be approaching levels of excess not seen since some of history’s biggest speculative booms.

In a May 22 report, Hartnett said if anticipated mega-IPOs from companies like SpaceX, OpenAI, and Anthropic are added to the market, the AI sector’s share of U.S. market capitalization could reach 47% to 48%. That would surpass concentration seen during the dot-com bubble, Japan’s 1980s rally, and the Nifty Fifty era, falling short only of the railroad boom of the 1880s.

Hartnett pointed to strong price momentum, falling volatility, and heavy retail investor participation as signs that speculative behavior is already present in markets.

BofA’s Sell Signal Flashes

Bank of America’s Bull & Bear Indicator rose to 8.0, triggering what the firm calls a contrarian sell signal. The indicator tracks investor positioning and sentiment, and readings above 8 have historically preceded weaker returns.

Hartnett noted there have been 17 previous sell signals since 2002. Global stocks fell an average of 2% to 3% in the two to three months that followed, with maximum drawdowns of up to 15% to 20% in some cases.

Despite this, investors kept putting money to work. U.S. equity funds saw inflows for an eighth straight week. Tech funds pulled in $9 billion, the largest weekly inflow since October 2025.

BofA’s private clients now hold a record 65.7% of their portfolios in equities. Cash levels have dropped to near record lows of around 10%.

Hartnett said rising bond yields are the main threat to the rally. He warned that “bond vigilantes” are starting to push back against market optimism, and that cracks are forming in emerging markets, housing, and private equity.

He pointed to weakness in Asian currencies like the Indian rupee and Indonesian rupiah as signs of stress. He also flagged a sharp rise in semiconductor prices in Asia, with Korean semiconductor export prices up 148% year over year and DRAM prices up 223%, arguing that Asia is exporting inflation to the rest of the world.

Hedge Funds Keep Betting on Tech

Separately, a Goldman Sachs note to clients on Friday showed hedge funds bought technology stocks last week at the fastest pace in nearly three months.

Buying was led in dollar terms by North America and Asian emerging markets. Funds bought semiconductors and software companies. They sold communications equipment and IT services.

Hedge fund technology positions relative to the MSCI World Index are now at their highest level in over five years. Bets on global information technology stocks are at record highs dating back to 2016, when Goldman Sachs Prime Brokerage started tracking these trades.

Goldman noted that AI-related companies, particularly semiconductor and chip manufacturers, have held up well despite global economic uncertainty stemming from the Iran war.

Mixed Picture Across Assets

Oil has been the top-performing major asset class in 2026, up more than 70% year to date. Emerging-market equities have gained more than 17%. Bitcoin has fallen more than 11% this year.

Hartnett said commodities and emerging markets remain long-term bullish themes. He also suggested consumer stocks could become an attractive trade once the current market cycle peaks.

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