BofA Recommends Long Tech Leaders and Short AI Bonds Amid Bubble

Michael Hartnett advises long positions in tech leaders and undervalued assets while shorting AI bonds, citing issuance pressure from $1T capex and negative cash flows.

Woofun AI reports that Michael Hartnett, chief strategist at BofA Securities, outlined an optimal strategy for the current AI bubble environment: going long on leading AI technology stocks and neglected assets while shorting AI-related bonds. He noted that over $1 trillion in AI capital expenditures combined with negative cash flows creates significant issuance pressure on these bonds. The Bank of America Bull/Bear Index fell slightly from 9.7 to 9.3, remaining in an extremely bullish range despite a 'sell' signal issued in May. Private client stock holdings reached a record high of 66.

4%, while cash and bond holdings dropped to their lowest levels since 2022. Hartnett highlighted structural capital flows toward gold and commodities, with tech stocks experiencing the largest weekly outflow in seven weeks. The firm maintains its asset allocation framework of 'avoiding bonds, avoiding the dollar, and going all in on AI,' identifying soaring bond yields, cautious voter sentiment, and high asset allocations as key factors suppressing further bull market gains. With U.S. national debt approaching $40 trillion, yield trends are viewed as the biggest variable, though currency interventions by the U.

S. and Japan signal reluctance to let 10-year Treasury yields break through 5%. Under the 'avoiding the dollar' theme, the report recommends long positions in gold for hedging and expresses optimism about Hong Kong's real estate sector, which trades at approximately 12 times earnings. Looking ahead, the U.S. mid-term elections in November are considered a key political factor; if Republicans retain Senate control and the Texas governor is re-elected, AI-related risky assets may see accelerated growth by 2027, whereas other outcomes could trigger significant adjustments in stock markets, the dollar, and yields.