According to the BofA October Global Fund Manager Survey, global investors continued to add to technology stocks amid the AI-driven equity rally, with the overweight ratio on tech rising from 30% last month to 37%, the highest since August 2020.
About 45% of respondents expect an AI bubble to emerge by 2027, while 42% hold the opposite view.
The 37% net overweight reading is not an isolated data point. Looking back at the survey track record this year, net equity overweight hit a record high in May, in July "long semiconductors" was seen as the "most crowded trade" by 80% of respondents, setting an all-time survey record, and in August the cash allocation fell to an extremely low 3.5% while the Bull & Bear Indicator rose to 9.3, triggering a BofA "sell" signal.
Macro Optimism Persists, but Cracks Have Appeared
In this latest survey, respondents identified global semiconductor shares as the current market's "most crowded trade". In the June survey, the crowding of long semiconductor positions had already declined noticeably, yet long semiconductors still topped the most crowded trade ranking for multiple consecutive months. AI has consistently been the hottest trade in the stock market, driving the S&P 500 up nearly 120% over a four-year bull run. But as investors question whether returns can justify the massive spending in the tech sector, market enthusiasm has cooled somewhat. On Tuesday, South Korean memory chip giants Samsung Electronics and SK Hynix fell sharply, dragging Asia's benchmark stock index to its lowest level since August. Futures tracking the tech-heavy Nasdaq 100 index slipped 0.6%. The survey was conducted from October 2 to 8, with 161 respondents managing a combined $453 billion in assets.
Tech Overweight Tops the List, AI Trade Narrows Toward Leaders
Notably, beneath the surface, positioning is undergoing divergence, with hedge funds "reducing on the surface while concentrating in reality". The latest Goldman Sachs data show that hedge funds last week pushed tech stocks into the sector with the largest net selling, with the long-short ratio falling to the 17th percentile over five years. At the same time, however, Mag 7 positions as a share of hedge funds' total U.S. equity exposure have risen from 14% in June to 22%, the highest on record in prime book history. This contradiction of "cutting the sector while concentrating in individual names" reveals a dangerous structure in the current market: no one is truly leaving the AI trade, they are merely shifting from broad tech to the most core leaders. Once leader earnings disappoint, highly concentrated positions will amplify volatility. Goldman Sachs derivatives data also show that upside VIX convexity is extremely sought after while S&P 500 downside protection is "extremely cheap" — investors are hedging against a volatility spike, not against a stock market decline, and the pricing logic itself is asymmetric.
The Stock-Bond Switching Threshold Emerges, AI Capex Becomes a Hidden Worry
Bond pessimism has fallen to its lowest since May 2025. About 37% of respondents said that if the 10-year U.S. Treasury yield reached 6%, it would prompt them to shift from stocks to bonds; about 19% said they were already adjusting allocations. The 10-year Treasury yield currently sits near 5.19%. The survey shows that most fund managers believe a rise in Treasury yields to around 6% would be needed to trigger a large-scale shift from stocks to bonds, and the largest Treasury short covering in a year has just occurred. Equities remain net overweight, but the overweight ratio has slipped from 49% to 44%; the cash position remains at a low 3.9%, and both the BofA Cash Rule and the Bull & Bear Indicator have triggered sell warning signals. In terms of reallocation, funds increased exposure to bonds, Japanese and UK equities, and utilities, while sharply reducing banks, U.S. equities, and consumer discretionary. By sector, tech overweight reached its highest since August 2020, while consumer discretionary underweight hit its worst level since July 2008, with capital highly concentrated. Institutions ranked a disorderly rise in Treasury yields as the number one tail risk, with the AI bubble in second place. 39% of investors believe that a contraction in AI giants' capital expenditure is most likely to trigger systemic credit risk; 30% of institutions expect AI companies to cut capex in the next six months. Goldman Sachs derivatives data also show that upside VIX convexity is extremely sought after, while S&P 500 downside protection is "extremely cheap" — investors are hedging against a volatility spike, not against a stock market decline, and the pricing logic itself is asymmetric. Overall, global institutions are still betting on technology and high-quality earnings, favoring large-cap and high-dividend styles, but low cash positions, crowded trades, uncertainty over AI capex, and Treasury yield disruptions constitute the main constraints on the market. The contrarian approach suggested by the BofA report is: go long bonds, REITs, and consumer sectors, and reduce overheated tech and banks. The survey only reflects the current consensus of institutions, and a reversal of consensus often brings violent fluctuations. When tech overweight hits a six-year high and the AI bubble debate nears a 50-50 split, what the market truly needs to guard against may not be whether a bubble exists, but the chain reaction once crowded trades begin to loosen.
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