NEW YORK, NY — Bank of America has issued a stark warning to global markets, stating that the current massive surge in artificial intelligence infrastructure spending is increasingly following the historic “capital-cycle” playbook that precedes major financial boom-and-bust collapses.
According to a comprehensive equity research report released by BofA investment strategist Sebastian Raedler, the 12-month forward consensus for hyperscaler capital expenditure expectations has expanded dramatically from $330 billion in early 2025 to a staggering $1 trillion. This immense infrastructure spend represents roughly 3% of U.S. GDP—surpassing the intensity of both the 1870s railway boom (2.2% of GDP) and the 1990s dot-com era (1.1% of GDP).
The Supply-Side Trap: Shrinking Margins and Price Degradation
Bank of America’s core thesis relies on the macroeconomic reality of classic industrial and tech cycles. While the underlying technology frequently lives up to its long-term potential, massive initial profit margins inevitably lead to aggressive overinvestment, flooding the market with excess capacity.
Unlike the software-and-cloud era of the 2010s—which maintained pricing power due to high entry barriers—the current AI landscape is facing hyper-competition. BofA points out several critical vulnerabilities emerging in the sector:
- Token Price Deflation: Average AI token pricing has plunged roughly 50% since the summer, eroding revenue realization per unit of compute.
- Monetization Disconnect: While model utilization and data volumes continue to step up globally, corporate software trackers like Ramp AI show that overall U.S. business spending on AI applications has actually flattened slightly since August.
- Open-Weight Pressures: Rapid development from international and open-weight model alternatives continues to dismantle the premium pricing moats established by early pioneers.
“This monetization disappointment in the face of intense competition is precisely the failure mode seen in past capital cycles,” Raedler noted, cautioning that technology optimization can succeed even if early investors suffer devastating drops in capital returns.
Cracks In Global Markets and the “Risk-Off” Pivot
The cracks are already shifting macro data. The Philadelphia Semiconductor Index has dipped roughly 13% below its recent high, while corporate credit default swaps for major AI-linked infrastructure spenders are beginning to register visible distress signals.
Concurrently, Bank of America chief strategist Michael Hartnett has advised institutional investors to maintain a defensive stance for the next month. BofA’s October Fund Manager Survey highlighted that while global funds remain structurally overweight in mega-cap tech, 45% of institutional managers now expect a definitive AI bubble pop within the upcoming calendar cycles.
Hartnett recommends scaling back crowded technology allocations and rotating capital into unloved, rate-sensitive and defensive asset groups, including consumer staples, real estate investment trusts (REITs), and selected small-cap indices.
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Mohd Hassan has extensive experience in news gathering, editing, and writing for the newswire industry, Contact – Info@impactnews-wire.com
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