AI Bubble Replaces Inflation as Top Market Risk in BofA Survey
The latest Global Fund Manager Survey from Bank of America shows a sharp change in what professional investors fear most. In February 2026, the biggest perceived “tail risk” is no longer inflation or recession – it is an AI bubble.
Key Takeaways
- AI bubble is now the top tail risk (25%).
- Private credit seen as main crisis trigger (43%).
- Bull & Bear Indicator at 9.5 – contrarian sell signal.
- Most managers say stocks are overvalued but stay overweight.
- Gold is the most crowded trade.
The survey, which reflects the views of hundreds of institutional managers overseeing trillions of dollars, suggests that markets are walking a fine line between confidence and complacency.
AI Bubble Becomes the Top Threat
An AI-driven market bubble is now cited by 25% of respondents as the single largest tail risk. Just one year ago, only about 14% saw it as a major threat, and more than half explicitly said they did not believe a bubble existed.
The concern centers on massive corporate capital expenditure in artificial intelligence infrastructure. Investors worry that spending may be running ahead of realistic revenue returns, creating stretched valuations across tech-heavy indices.
In February 2025, inflation linked to aggressive Fed rate hikes was the dominant risk at 41%. That narrative has now shifted dramatically toward technology valuations.
Inflation and Bond Yields Still Loom
Although AI tops the list, inflation remains a structural concern. Fund managers are wary of a potential second wave of price pressures or inflation remaining above central bank targets for longer than expected.
Another rising risk is a disorderly surge in bond yields. A rapid spike in rates could destabilize equity markets and tighten financial conditions abruptly, particularly in a highly leveraged system.
Geopolitical conflict, which was the top concern in January 2026, has slightly faded but remains a meaningful threat in the background.
Private Credit Flagged as Systemic Trigger
One of the most striking findings is that 43% of managers identify private credit as the most likely source of a systemic financial event.
This reflects growing unease about opaque leverage and liquidity mismatches outside traditional banking channels. While not yet a dominant headline risk, it is increasingly viewed as a potential flashpoint in the next credit cycle.
A Hyper-Bullish Market Environment
Despite mounting tail risks, the broader tone of the survey is strikingly optimistic.
BofA’s Bull & Bear Indicator climbed to 9.5 in February 2026 – a level considered “hyper-bullish” and historically associated with contrarian sell signals. Such extreme readings often suggest that positioning is crowded and upside may be limited in the near term.
At the same time:
- 60% of managers believe global equities are overvalued, a record high.
- Yet investors remain overweight stocks.
- Recession fears have collapsed to just 3%, a multi-year low.
The consensus view has shifted toward a “no landing” scenario – continued growth alongside persistent inflation.
The Crowded Trade Flip: From Tech to Gold
Another major shift from 2025 to 2026 is in positioning.
A year ago, “Long Magnificent 7” tech stocks dominated as the most crowded trade at 56%. Now, “Long gold” holds the top spot for the second consecutive month, cited by 50% of respondents.
The rotation into gold suggests investors are simultaneously chasing risk assets while hedging against volatility, inflation, or policy uncertainty.
From Monetary Policy to Valuation Risk
The comparison between February 2025 and February 2026 highlights how quickly sentiment can change:
- 2025: Inflation and trade-war-driven recession fears dominated.
- 2026: AI valuations, bond yield risks, and private credit fragility take center stage.
- Recession anxiety has dropped sharply.
- Investor optimism has reached extreme levels.
The survey paints a market environment defined by strong risk appetite, crowded positioning, and growing concerns that enthusiasm – especially around artificial intelligence – may have outrun fundamentals.
For now, fund managers remain invested. But with the Bull & Bear Indicator flashing a contrarian warning, the balance between optimism and overheating is becoming increasingly delicate.
The information provided in this article is for educational purposes only and does not constitute financial, investment, or trading advice. Coindoo.com does not endorse or recommend any specific investment strategy or cryptocurrency. Always conduct your own research and consult with a licensed financial advisor before making any investment decisions.
Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
