While BofA analysts say AI bubble risks have grown, some unique factors could emerge as headwinds to the market’s continued rally. <\/p>\n
5 big risks<\/p>\n
The analysts noted that by historical standards, the S&P 500 appears expensive, with valuations rising even higher than the 1990s tech boom.<\/p>\n
While they acknowledged that the companies powering the index’s growth this time appear financially stronger and carry less debt, they still see several risks that investors shouldn’t disregard.<\/p>\n
First<\/strong>, the bank’s team, led by analyst Savita Subramanian, believes that signs of a bear market are flashing, even as market growth appears robust. “Those that tripped over the last few months include high PE, expensive v. cheap stock performance and credit indicators.”<\/p>\n Related stories<\/p>\n Business Insider tells the innovative stories you want to know<\/p>\n Business Insider tells the innovative stories you want to know<\/p>\n Subramanian said that, historically, when 70% of these warning signs flash, a peak often follows, leading investors into a bear market. So far, 60% of the signals that the bank tracks have flashed. <\/p>\n Second<\/strong>, the analysts say that the AI boom is at odds with consumer resilience. As they see it, the rise of AI may compel companies to eliminate more white-collar workers who have helped drive robust consumer spending. To account for this risk, they recently lowered their rating on the consumer discretionary sector of the stock market. <\/p>\n Third<\/strong>, the bank sees budding risk in the “Gordion knot” of mega-caps, private companies, and the US government. “Uncle Sam buying stocks isn’t new but is more often a bailout than a strategic investment. Again, not a risk in itself, and may be net bullish – a new, likely long-term, buyer of US stocks – but it adds to the complexity.”<\/p>\n Fourth<\/strong>, the analyst says there is a high risk stemming from macroeconomic uncertainty. The “macro fog” around tariff impacts, as well as a lack of new data during the government shutdown, has investors flying blind. “October brought China \/ US trade re-escalation and a shutdown in the US government and, as such, economic data. A pause in activity is likely on constrained visibility, and this is what stymied a pickup in economic activity in 2Q\/3Q.”<\/p>\n![\"\"\/](\"https:\/\/www.europesays.com\/us\/wp-content\/uploads\/2025\/07\/placeholder.png\")
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