A senior strategist at Bank of America has issued a cautionary note regarding the burgeoning artificial intelligence sector within the stock market. The current valuation metrics for AI-related companies are reaching unprecedented heights, drawing unsettling comparisons to historical market frenzies.
Bank of America Strategist Michael Hartnett Raises Alarm on Soaring AI Stock Valuations, Drawing Parallels to Dot-Com Bubble
On September 14, 2025, financial markets received a stark warning from Michael Hartnett, a respected strategist at Bank of America. Hartnett expressed significant apprehension about the possibility of an impending bubble in the AI stock market, citing various valuation indicators that are now exceeding levels seen during the infamous dot-com boom of the late 1990s and early 2000s. Specifically, the S&P 500's price-to-book ratio, a critical metric comparing a company's market capitalization to its book value, reached an all-time high of 5.3 in August. This figure notably surpassed the 5.1 peak recorded in March 2000, which marked the zenith of the dot-com bubble. Furthermore, the 12-month forward price-to-earnings ratio for the S&P 500 is currently at its highest point since that period, with the exception of August 2020. The Shiller cyclically-adjusted price-to-earnings (CAPE) ratio, which assesses current prices against a decade-long rolling average of corporate earnings, is also mirroring the extreme levels observed in 1929, 2000, and 2021. Despite the consistent outperformance of many AI companies in terms of earnings, suggesting some justification for investor optimism, Hartnett cautions that a market reversal could lead to significant shifts, potentially favoring bonds and non-U.S. equities. His message to investors is clear and direct: “It better be different this time,” underscoring the precarious nature of the current market climate.
This expert's alert serves as a crucial reminder for investors to exercise prudence amidst the enthusiasm surrounding AI. While the transformative potential of artificial intelligence is undeniable, the historical context provided by Hartnett highlights the inherent risks of inflated valuations. A correction in the AI market could have far-reaching consequences, impacting not only technology stocks but the broader global financial landscape. Investors should consider diversifying their portfolios and meticulously scrutinizing the fundamentals of individual companies rather than solely riding the wave of market sentiment.