Bank of America warns: AI popularity remains high but valuation may be reassessed, strong profits do not necessarily lead to strong price increases.

Bank of America Securities stock and quant strategy chief Savita Subramanian warned that despite the strong profit growth expected from large tech companies, their valuations may still see a re-adjustment. In an interview, Subramanian expressed concerns that investors are "mistaking fantasy for reality" by investing in tech stocks, paying extremely high or near-extreme price-to-earnings ratios for companies building the necessary power infrastructure and data centers for artificial intelligence, without clear evidence of profitability in the near term. She said, "We are paying high valuations for growth stocks, but we don't exactly know how all of this will unfold in the coming years." She also pointed out that due to constraints in power supply and implementation challenges, the actual realization of investments in artificial intelligence may not materialize until 2026. Subramanian predicted strong profit growth of 14% for companies next year, with earnings per share reaching $310, but she believes the market may not necessarily react accordingly. She added, "The big focus next year will be on valuation adjustments. Looking at historical data, it is usually not the case that the market performance is highest during years of strong profit growth." In contrast to the mainstream market view, Subramanian recommended increasing investments in sectors like essential consumer goods and discount retailers. She believes that low-income consumer groups are expected to see improvements in the coming months, due to potential increases in tax refunds and government measures aimed at addressing inflation issues before the midterm elections.