Bank of America: History Suggests It Is Hard to Disrupt the AI Boom

Bank of America strategists are advising clients that the current artificial intelligence boom is not in a bubble, citing historical precedents and proprietary risk indicators to argue that the sector can withstand higher interest rates.

In a report released Wednesday, the global equity derivatives research team, led by Benjamin Bowler, concluded that while global bond yields are rising, they would need to spike significantly more than current levels to derail the AI trade. The analysts noted that strong earnings growth in the sector is outpacing share-price appreciation, resulting in smaller price-to-earnings multiples rather than the inflated valuations typical of market bubbles.

The bank’s proprietary “bubble risk indicator,” which synthesizes an asset’s returns, volatility, momentum, and fragility into a single reading, suggests that U.S. stock indices are relatively untroubled. Analysts believe equities will rebound quickly from any pullbacks, distinguishing the current environment from past crises.

Bowier pointed to the late 1990s dot-com bubble as a key historical comparison. During that period, U.S. long bond yields surged by more than 200 basis points, and the Federal Reserve raised rates by over 100 basis points as the Nasdaq soared. Crucially, stock prices at the time clearly decoupled from fundamentals—a phenomenon that is not yet present in 2026.

Additionally, bond market turbulence this year has been mild compared to historical norms. The maximum drawdown for the 30-year bond so far in 2026 was 7%, a fraction of the 25% sell-off seen in 2022. Although bond yields have reached multi-year highs, the muted reaction from both bonds and equities indicates that the associated tightening in financial conditions has been less disruptive than in the past.

The report also highlighted macroeconomic factors that may support the AI thesis. U.S. interest payments currently account for approximately 4.1% of GDP, compared to nearly 5% during the late 1990s. The efficiencies and productivity gains promised by AI adoption could provide a pathway for the U.S. to absorb higher interest-rate costs.

Despite headlines focusing on rising yields, Bowler noted that volatility markets remain calm. He cited Bank of America’s global financial stress index, which tracks 20 to 40 measures of market anxiety across five asset classes. The latest reading showed no significant reaction, with derivative markets remaining sanguine.

However, the bank issued a caution regarding future volatility. The report warned that upcoming Federal Reserve meetings could catalyze rate volatility if the tightening demanded by markets does not materialize. Bowler stressed that a seemingly benign policy decision could undermine confidence in the broader policy mix, potentially triggering a disorderly bond market tantrum.

The note concluded that while bubble-like environments can eventually consume macro risks, the technological leap offered by AI allows investors to pull forward the value of future growth, helping them overcome current macro headwinds. In Thursday trading, U.S. 10-year bonds yielded 4.83%, and Nasdaq futures indicated a lower open.