BofA Strategist Warns AI Investment Boom Carries Crash Risk, Urges Hedging

Bank of America European equity strategy head Sebastian Raedler has warned that investors should hedge their exposure to AI-driven stocks, saying that every major investment boom over the past 200 years has eventually ended in a crash.

"This is a very high-stakes game," Raedler said in an interview. He noted that many investors feel they have no choice but to participate in the AI trade, but they need to be ready to act quickly if signs of a reversal appear. "People are nervous," he said.

Raedler urged investors to start positioning in stocks that have been hit hard but would benefit if the current boom proves unsustainable. He also mentioned that colleagues on his derivatives team have proposed options strategies on defensive sectors such as consumer staples as a hedging tool.

AI has become the single dominant factor across markets, including rates, in a way he said he had never seen in his 20-year career, and this correlation could fuel any potential crash, Raedler said. He added that history suggests when markets stretch this far, the risk of reversal is extremely high and it becomes difficult to get out in time. "I would say hedge now," he said.

On earnings, Raedler said strong corporate profitability amid a weak macro environment reflects a timing mismatch caused by hyperscaler capital expenditure, with revenues recognized before costs. He argued this is creating an "earnings euphoria" that inflates profits. Raedler has been cautious on European equities generally in recent years; his team predicted a more than 10% drop in the Stoxx Europe 600 in the fourth quarter of 2025, but the index rose more than 7% instead.