BofA Merrill Lynch Survey Flags AI Capex Risk as Semiconductor Trade Stays Crowded

BofA Merrill Lynch's global fund manager survey tracks the risk appetite and asset allocation of major investors. An improving corporate earnings outlook and expectations that major central banks will cut interest rates have prompted investors to shift into equities and reduce cash holdings. Semiconductors have become an investment focus amid demand for computing power from generative AI, though the concentration of the trade also increases the risk of a valuation correction.

BofA Merrill Lynch's May survey showed its fund manager sentiment index rising to its highest level since February, with 73% of respondents identifying “long global semiconductors” as the most crowded trade. The survey also said capital spending by AI cloud providers on data centers and computing capacity continues to climb and could become a source of risk for credit markets, though the report did not disclose a single aggregate spending figure.

The BofA Merrill Lynch Fund Manager Survey is an important gauge of global institutional investors’ asset allocation and risk appetite. As AI stock valuations and investment in cloud infrastructure rise rapidly, markets are increasingly focused on risks involving returns on capital expenditure, corporate credit and excessive concentration in semiconductor holdings.

The latest March survey showed that the fund manager sentiment index fell to a six-month low amid geopolitical tensions and an uncertain economic outlook. An AI stock bubble and capital spending by AI cloud providers were cited as major tail and credit risks, while semiconductors remained the most crowded trade. The report did not disclose specific amounts or the survey date.