Bank of America Strategist Warns of Potential AI Stock Market Bubble, Citing Historic Valuation Metrics

Bank of America strategist Michael Hartnett has warned of a potential AI stock market bubble, citing historic highs in valuation metrics such as the S&P 500's price-to-book ratio. Despite AI companies consistently beating earnings expectations, Hartnett cautions that if the market starts to unwind, bonds and non-US stocks could gain.

Bank of America strategist Michael Hartnett has issued a cautionary note about the potential for an AI stock market bubble, citing historic highs in valuation metrics such as the S&P 500's price-to-book ratio. Despite the consistent performance of AI companies in beating earnings expectations, Hartnett warns that if the market begins to unwind, investors might see bonds and non-US stocks as safer havens.

Hartnett's warning comes as AI companies like BigBear.ai and C3.ai face significant challenges. BigBear.ai, for instance, saw its revenue decline to $32.5 million in the second quarter of 2025, with adjusted EBITDA widening to a loss. However, the company's strong cash reserves, amounting to $391 million, indicate a robust financial position to scale aggressively and pursue acquisitions Generational AI Investments: Will BigBear.ai Capture Its Share?^[1].

C3.ai, on the other hand, experienced a significant drop in its stock price following the revelation of disappointing Q1 2026 financial results and reduced revenue guidance for the full fiscal year 2026. The company's shares fell by about 25.58% after the announcement, from $22.13 to $16.47 per share C3.AI SHAREHOLDER ALERT BY FORMER LOUISIANA ATTORNEY GENERAL: KAHN SWICK & FOTI, LLC REMINDS INVESTORS WITH LOSSES IN EXCESS OF $100,000 of Lead Plaintiff Deadline in Class Action Lawsuit Against C3.ai, Inc. - AI^[2]. Additionally, C3.ai faces a class action lawsuit due to allegations of failing to disclose material information, which has further impacted investor confidence C3.AI SHAREHOLDER ALERT BY FORMER LOUISIANA ATTORNEY GENERAL: KAHN SWICK & FOTI, LLC REMINDS INVESTORS WITH LOSSES IN EXCESS OF $100,000 of Lead Plaintiff Deadline in Class Action Lawsuit Against C3.ai, Inc. - AI^[2].

Despite these challenges, Hartnett's warning underscores the importance of maintaining a balanced investment portfolio. Investors should consider diversifying their holdings to mitigate potential risks associated with the AI sector. As the market continues to evolve, staying informed about the latest developments and regulatory changes will be crucial for making informed investment decisions.