BofA estimates US tech stocks are close to a bubble.
BofA assesses "US tech stocks" are close to a bubble. Refer to the Bond Yield indicator. Valuation and price movements Indicating there is still additional profit.
On February 16, 2567, Bloomberg News reported that strategists at Bank of America Corp. (BofA) said similarities between current technology stocks and previous bubbles suggest that the Magnificent Seven is approaching, but not yet at a level that could trigger a massive stock surge.
BofA strategists cited a number of indicators, such as bond yields. Valuation and price movements This indicates there are further gains ahead of the group, which also includes Apple Inc. and Amazon.com Inc.
Michael Hartnett, a strategist at BofA, stated that inflation-adjusted bond yields, often seen as a proxy for tight financial conditions, are a common way stock market bubbles burst. Considering the overwhelming debt levels across the global financial system, the real yield (minus inflation) on 10-year bonds would need to reach 2.5% or 3% to end the investor frenzy surrounding artificial intelligence and mega-cap technology. Currently, it stands at around 2%.
Valuation is another reason. With a price-earning ratio of 45, the Magnificent Seven are expensive no matter how much they stretch. However, Hartnett's research shows that past upward movements reached even more extremes before peaking, with multiples of 67 for Japanese stocks in 1989 and 65 for the Nasdaq Composite in 2000.
Another indicator Hartnett's team mentioned is that the gains are smaller than other bubbles measured from their peaks. Since the lows in December 2565, Magnificent Seven has surged approximately 140%. Strategists say this isn't the 190% gain during the internet bubble for the Nasdaq Composite or the 230% rise of FAANG stocks from the Covid lows.
Reading the data with skepticism could mean that these remain warning signs for investors hoping for further movement, and indeed, Hartnett points out that "no two bubbles are alike."
However, demand for technology stocks continues to climb this year, with the Magnificent Seven index projected to rise nearly 12% in 2567, and recent capital flow data shows global investors increasing their expectations.
Hartnett said approximately $2.3 billion was added to technology-focused funds, citing EPFR data for the week ending February 14. Nearly $60 billion has flowed into equity funds over the past four weeks, the largest scatter in two years. Nasdaq 100 futures rose 0.5% on Friday.
Reference: bloomberg.com
