BofA says easy money from buying AI capex and selling consumers is fading
In short
Bank of America strategists led by Savita Subramanian said in a client note that the excess returns from buying AI capital-spending beneficiaries and selling consumer themes are getting harder to capture. They pointed to extreme positioning: active funds are near record lows in IT services, consumer finance and software, and near record highs in industrials versus consumer discretionary. The call partly revises a BofA thesis held for about a year that favoured capital spending over consumer spending.
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Bank of America strategists led by Savita Subramanian said the returns from buying AI capital-spending beneficiaries while selling consumer themes may be getting harder to earn, according to a client note reported by Bloomberg. The note, described as a customer memo dated Oct. 5 local time, said the excess return from that pairing “may become harder to obtain in the future.” [ 1 , 2 ]
Subramanian said it would be risky to underestimate US consumers' willingness to spend, and that the strength in capital spending is likely already largely reflected in prices, adding that it is now time to shift direction selectively. She said two trends — abundant AI investment and weaker consumption as white-collar jobs shrink — are already sufficiently reflected in investor positioning. [ 1 , 2 ]
Citing BofA analysis, the documents said active funds' positions in what they called AI-harmed sectors — IT services, consumer finance and software — are near record lows, while positions in industrials relative to consumer discretionary are close to an all-time high. Fund managers increased weights most in electronic equipment, devices and components. [ 1 , 2 ]
The divergence shows in returns: over the past 12 months the S&P 500 consumer staples index rose 4.6% while the consumer discretionary index fell 3.3%, and Lululemon and Nike shares each fell about 50% over a year, according to the BofA data cited. [ 1 , 2 ]
The call partly revises a logic BofA had kept for about a year. In its annual outlook last November, the bank said it preferred capital spending over consumer spending and expected AI-related spending to act as the market's ballast. [ 1 , 2 ]
Why it matters
The note marks a partial reversal by a major bank that had spent about a year recommending capital-spending exposure over consumer spending, which may prompt funds to reconsider crowded AI-linked positions. It also flags a possible shift in how investors weigh US consumer demand against AI-driven job losses. The documents give no market reaction, so the immediate impact is not yet stated.
Key facts
- Bank of America strategists led by Savita Subramanian said in a client note that excess returns from buying AI capital-spending beneficiaries and selling consumer themes may become harder to obtain, according to Bloomberg. [ 1 , 2 ]
- Subramanian said it is risky to underestimate US consumers' willingness to spend and that capital-spending strength is likely already largely priced in, calling it a time for selective repositioning. [ 1 , 2 ]
- BofA analysis cited active funds' positions in IT services, consumer finance and software — described as AI-harmed sectors — at close to record lows. [ 1 , 2 ]
- Positions in industrials relative to consumer discretionary were close to a record high, and the biggest sector overweight increase was in electronic equipment, devices and components, according to BofA. [ 1 , 2 ]
- Over the past 12 months the S&P 500 consumer staples index rose 4.6% while the consumer discretionary index fell 3.3%, and Lululemon and Nike shares each fell about 50% over a year, BofA data showed. [ 1 , 2 ]
- The note partly revises BofA's investment logic held for about a year, after it said in its annual outlook last November that it preferred capital spending over consumer spending. [ 1 , 2 ]
Confirmed by several sources
- BofA strategists led by Savita Subramanian said excess returns from buying AI capital-spending beneficiaries and selling consumer themes may be harder to earn, per a Bloomberg report on a client note. [ 1 , 2 ]
- Active fund positioning is near record lows in IT services, consumer finance and software, and near a record high in industrials versus consumer discretionary. [ 1 , 2 ]
- Consumer staples rose 4.6% over 12 months while consumer discretionary fell 3.3%, with Lululemon and Nike each down about 50% over a year. [ 1 , 2 ]
- The call partly revises BofA's roughly year-old preference for capital spending over consumer spending. [ 1 , 2 ]
Still unclear
- When exactly the BofA client note was published and to whom it was addressed. Both documents refer to the note through Bloomberg's Oct. 5 report and describe it as a client note or report, without a publication date of its own.
- What precise portfolio changes BofA recommended beyond “selective” repositioning. The documents quote only a general call to shift direction selectively, with no sector or weighting targets.
- Savita Subramanian's exact title and the size of the BofA strategy team. Both documents identify her as leading the strategy team but do not give her title.
- Whether the positioning data covers US funds, global funds or both. The documents describe active fund positions without specifying the fund universe.
- How markets or investors responded to the note. Neither document reports a market reaction.