BofA strategists say easy money from AI capex trade is largely made

Bank of America's equity strategists say the easy money from the artificial-intelligence capital-spending trade has largely been made, and the Monday note gives advisors a concrete reason to re-open AI-heavy equity sleeves.

The trade Savita Subramanian and her team describe pairs two positions: owning the companies that collect AI capex dollars and selling the white-collar consumption themes AI is presumed to hollow out. Both legs are already in positioning, they write, with abundant AI-related spending sitting alongside shrinking discretionary spending, the latter spurred by white-collar job losses. "Alpha from buying AI capex beneficiaries and selling white-collar consumption themes may be harder fought," the note says, and on that basis it recommends investors "selectively pivot," reasoning that it is "dangerous to underestimate the appetite of US consumers and capex strength may be more priced in than not."

That positioning shows long-only active managers sitting near record lows in the sectors BofA labels "AI disruptees"—information-technology services, consumer finance, and software—while their industrial weight sits near record highs relative to consumer discretionary; electronic equipment, instruments and components is the group they are most overweight.

Prices have partly made the trade-down argument already: consumer staples and discretionary stocks have both trailed the S&P 500 over the past 12 months, but the S&P 500 Consumer Staples Index is up 4.6% in that stretch while a gauge of consumer discretionary stocks is down 3.3%, and Lululemon Athletica and Nike are each off about 50% over the year.

Set against BofA's November year-ahead outlook, which favored "capex over consumption" and called AI-linked spending the "ballast," the note is an argument about degree rather than direction; Subramanian calls the current positioning "justified." The week before the note, the firm told investors they might want to "get bulled up" as the distribution of market risks shifted to the upside with strong consumer spending and healthy balance sheets. The payoff on the second leg has shifted: an underweight in white-collar consumption looks crowded enough that collecting on it takes more work.

For a client sleeve, the question is how much of the paired trade sits inside a long-only portfolio, not whether to own AI infrastructure. If active managers are near record underweights in IT services, consumer finance and software, a discretionary recovery can arrive through the fund rather than through an advisor's own call. Watch whether the staples-versus-discretionary spread keeps narrowing while industrial weights stay near their highs.