AI fatigue sets in as investors sell tech for first time in weeks

By Samuel Indyk

LONDON (Reuters) -Investors are starting to grow weary of the hype around artificial intelligence, as evidenced by the first outflow from technology stocks in almost three months, according to Bank of America Global Research on Friday.

In the week to Wednesday, investors poured money into cash, equities and bonds and ditched gold and emerging market equities.

Equity funds saw $2.2 billion of inflows in the week to September 6, BofA said, citing data from provider EPFR, but tech stocks saw $1.7 billion in outflows, the first in 11 weeks.

Global equities have rallied this year, powered higher by a group of mega-cap U.S. technology stocks including Microsoft and Nvidia that have shown they can benefit from a boom in AI.

But the rally has stalled somewhat in the last month as government bond yields rose due to a robust U.S. economy, which has seen markets push back the timeline for potential rate cuts from the Federal Reserve.

The “zeitgeist” among investors right now, according to BofA strategist Michael Hartnett, who authors the weekly report, is: “Soft landing is all the rage, but ain’t a bond manager in the world with more than $150 billion of assets under management who doesn’t think there won’t be a hard landing.”

Bank of America said higher for longer oil prices, U.S. dollar and yields and tighter financial conditions remain the September and October risk for risk assets.

Brent crude rose to its highest level since November on Wednesday, while the dollar has soared to its highest level since March and is on track for its longest weekly winning streak in nine years.

“Any rally in risk as FCI (financial conditions index) eases in Autumn on say negative payrolls, we would sell,” the report said.

Elsewhere, there was a net $4 billion inflow into bonds, with investors also putting $68.4 billion into cash, the largest inflow in nine weeks.

Meanwhile, the firm’s “Bull & Bear indicator” dropped to 4 from 4.4, driven by emerging market bond and stock outflows and narrow equity market breadth.

(Reporting by Samuel Indyk; Editing by Amanda Cooper and Ros Russell)