BofA Research Flags Erosion of AI-Driven Tech Support as Primary Equity Risk Amid Rising Yields

BofA analysts argue that concentrated buying in AI-related technology names has functioned as an implicit support mechanism for major indices since late 2023. This dynamic emerged after the October 2023 yield spike and has since offset multiple macro headwinds. Primary data from S&P 500 sector weights show the Magnificent Seven accounting for over 30 percent of index gains through mid-2024.

Rising Treasury yields above 4.5 percent on the 10-year note have historically pressured valuations, yet equity multiples in AI-exposed names have remained elevated. Federal Reserve flow-of-funds data confirm sustained institutional allocation into large-cap growth equities even as real yields climbed. The pattern mirrors prior episodes where policy or narrative support substituted for broad earnings breadth.

If AI capital expenditure guidance from hyperscalers falls short of current run rates, the support mechanism weakens. Historical parallels from 2022 show rapid re-rating once narrative momentum stalled. Forward earnings revisions from FactSet indicate AI revenue forecasts already embed 25 percent year-over-year growth assumptions through 2025.

Next earnings season will test whether these projections hold. A 10 percent shortfall in aggregate AI-related capex announcements would likely trigger index rotation out of mega-cap tech, independent of yield movements.