Bank of America Says the Easy Money From the AI Trade Is Over

The era of effortless gains from riding the AI spending wave is ending, according to Bank of America.

Investors are likely to find it increasingly hard to make "easy money" by betting on outsized returns from artificial intelligence-linked capital expenditures compared with consumer-driven spending, according to strategists at Bank of America Corp.

The call comes from strategists led by Savita Subramanian, in a client note on Monday.

The trade is already crowded

The combination of abundant AI-related spending and shrinking discretionary spending, with the latter spurred by white-collar job losses, is already baked into investment positions, Subramanian wrote.

Going forward, "alpha from buying AI capex beneficiaries and selling white-collar consumption themes may be harder fought," she said.

BofA's analysis of long-only active funds shows positioning in sectors referred to as "AI disruptees" — information-technology services, consumer finance and software — sits near record lows. Meanwhile, positioning in industrial stocks is near record highs relative to consumer discretionary stocks.

Time to selectively pivot

"We think it's time to selectively pivot, as it is dangerous to underestimate the appetite of US consumers and capex strength may be more priced in than not," Subramanian said.

Fund managers are most overweight electronic equipment, instruments and components, according to BofA.

With high-paying jobs among AI disruptees increasingly at risk, Subramanian now sees "a continued trade down amid white collar professionals from wants to needs." The trend is evident in positioning in staples stocks versus discretionary stocks, she said.

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Options market and stocks to watch

If the easy money in AI capex is behind us, the trade is shifting from momentum chasing to stock picking. Watch whether call-skew in AI beneficiaries like NVDA, MSFT, and AVGO starts to flatten as the crowd thins, while semis equipment names like AMAT and LRCX face rotation risk on crowded positioning.

BofA's pivot call favors the consumer side of the barbell. Look for renewed options interest in staples and select consumer names as white-collar spending power holds up better than feared, and watch XLP versus XLY positioning as the "wants to needs" trade plays out.

Industrials, where positioning sits near record highs versus discretionary, could be the pain trade if rotation goes the other way. Monitor XLI and individual industrial flow for signs of de-risking.

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