BofA Fund Manager Survey Reveals AI Bubble Fears Rising Just as Positioning Turns Bullish and Cash Hits a Warning Low

The November Bank of America Global Fund Manager Survey arrives at a moment when markets are being rattled by a sharp AI-led unwind, and the findings are as revealing as they are timely. The survey shows investors coming into this drawdown both bullishly positioned and increasingly anxious about the very bubble that is now deflating in real time. While the shakeout across AI, mega-caps, and growth leadership over the past two weeks has been jarring, the survey suggests that investors had already begun heading for the exits well before prices cracked—which paradoxically may bring this correction closer to its end than its beginning.

To understand why, it’s important to start with sentiment. The survey’s composite sentiment score—driven by cash levels, equity allocation, and growth expectations—rose to 6.4 in November, the highest since February. Growth expectations turned positive for the first time this year, with net 3% of investors now expecting global activity to improve over the next 12 months, up from -8% in October. A soft-landing narrative dominates, with 53% forecasting a gentle glide path and only 6% bracing for a hard landing. Yet this optimism is layered on top of persistent concerns about inflation, with 62% still labeling the macro backdrop as “stagflation.” The resulting mix—rising optimism and persistent inflation skepticism—has produced the kind of positioning that tends to look fragile once volatility hits.

That fragility shows up most clearly in cash levels. Average cash dropped to 3.7% from 3.8%, the lowest since the 2021–2022 speculative peak and below BofA’s 4% “sell signal” threshold. Historically, every instance of sub-3.8% cash since 2002 has been followed by weaker equities and stronger Treasuries over the next one to three months. In other words: investors came into the recent AI rout with little cash left to deploy. This is the single biggest near-term caution flag in the entire report.

Yet outside of cash, positioning looks more nuanced. Equity exposure rose to a net 34% overweight, the highest since February but still well below the 50–60% levels seen at major market tops. Investors remain heavily overweight EM equities, healthcare, banks, and commodities, with commodity exposure hitting its strongest level since September 2022. At the same time, Eurozone and UK equities were aggressively sold, discretionary saw its sharpest allocation cut since 2005, and tech exposure was trimmed by the most in eight months. Even as the “Magnificent 7” reclaimed the top spot as the most crowded trade, investors were already rotating into defensives, real assets, and EM—an early warning crack in the AI-centric leadership.

Nowhere is the tension between positioning and fear more obvious than in the AI bubble debate. A record 63% of managers say global equities are overvalued, while 53% believe AI stocks are already in a bubble—just shy of October’s all-time high. And 45% identified “AI bubble” as the biggest tail risk, a sharp rise from last month’s 33%. The survey also captured the first majority reading since 2005 that companies are “overinvesting,” driven almost entirely by concern about the magnitude and sustainability of hyperscaler AI capex. And yet, managers simultaneously view AI as genuinely transformative: 53% say AI is already boosting productivity, 15% expect the real productivity payoff in 2026, and another 27% expect it later. This is not a bubble built on disbelief—but one built on belief coming too fast.

This makes the timing of the current AI meltdown especially interesting. The survey suggests investors were already worried about bubble dynamics, already cutting tech exposure, and already rotating toward safety before markets broke. That means the ongoing liquidation may be more of a position-clearing event than the start of a structural unwind. If December’s survey shows cash levels jumping back above 4%—a plausible outcome given this month’s volatility—it would flip one of the biggest red flags back into a supportive signal.

Looking further ahead, expectations for 2026 paint a picture of optimism, not mania. International equities are expected to be the best performing asset class next year, followed by US equities, with MSCI EM and the Nasdaq leading among equity indices. In currencies, the yen is expected to outperform in 2026, followed by gold, consistent with the underweight-dollar and overweight-commodities positioning. Investors see the 10-year Treasury finishing 2026 in the 4.0%–4.5% range and the S&P 500 ending 2026 in the 7000–7500 band, while the most bullish macro catalyst for 2026 is “AI productivity gains.” The most bearish: “inflation and Fed rate hikes.”

Taken together, the survey reflects a market that was bullishly exposed but psychologically uneasy before the recent drop. Investors feared the AI bubble, were trimming tech and discretionary, and were rotating into EM, healthcare, and commodities—all before the tape rolled over. That implies this correction is removing excess in the very places the survey identified, a dynamic that often precedes—not follows—major trading bottoms.

The only reason not to lean into that interpretation is cash. But if next month’s FMS shows cash surging as investors capitulate, this pullback could look like a classic late-year opportunity—shakeout first, euphoria later.