Wall Street is growing louder with warnings that the artificial intelligence trade may be overheating.
After months of record gains in AI-linked stocks and corporate spending, concerns are mounting that the boom is starting to look like a bubble.
JPMorgan CEO Jamie Dimon underscored that tone of caution while speaking to reporters on Tuesday, calling elevated asset prices “a category of concern.”
“When asset prices are elevated, you have further to fall,” Dimon said, adding that while “consumers are still spending [and] companies are making money,” valuations and credit spreads remain stretched.
“You have a lot of assets out there which look like they’re entering bubble territory,” he said. “That doesn’t mean you don’t have 20% to go — it’s just one more cause of concern.”
That caution comes as new sentiment data shows investor exuberance reaching extremes.
Bank of America’s latest Global Fund Manager Survey, released Tuesday, cited an “AI equity bubble” as the top global tail risk for the first time in its history.
The survey, which polls roughly 200 fund managers overseeing nearly $500 billion in assets, also showed cash levels falling to 3.8%, near BofA’s “sell” threshold of 3.7%. Historically, readings below 4% have marked periods of peak risk appetite, often surfacing late in the market cycle.
That optimism is showing up in institutional positioning data too. State Street’s Risk Appetite Index, cited by DataTrek Research, shows large professional investors — or so-called “Big Money” investors — entered the fourth quarter as bullish as they’ve been all year, adding to riskier assets for five straight months.
“Absent a very large shock, it is unlikely they will change their views soon,” wrote Nicholas Colas, co-founder of DataTrek.
Another early warning sign: Correlations across sectors have fallen to their lowest level since the current bull market began. Colas said these “unusually low” readings tend to appear when investor confidence runs “too high” and is a pattern that often precedes short-term pullbacks.
And as investors double down on risk, companies are matching that conviction and pouring billions into AI.
Google (GOOGL, GOOG) just unveiled a $15 billion investment in India to build its largest data center hub outside the US, while AMD (AMD) shares jumped thanks to a new chip partnership with Oracle (ORCL).
Walmart (WMT) also unveiled a partnership with ChatGPT maker OpenAI to expand AI-powered retail tools. Notably, OpenAI has moved aggressively to lock in chip and infrastructure deals over the past few weeks, inking agreements with Broadcom (AVGO), AMD (AMD), and Nvidia (NVDA) as it diversifies its supply chain — a self-investment cycle some analysts say could be amplifying bubble risks.
