The popular strategy of buying companies tied to AI capital spending and shunning consumer-driven names has been crowded, according to Bank of America strategists led by Savita Subramanian. With abundant AI outlays and thinner discretionary budgets already shaping portfolios, she wrote that "alpha from buying AI capex beneficiaries and selling white-collar consumption themes may be harder fought." Her takeaway: "We think it's time to selectively pivot, as it is dangerous to underestimate the appetite of US consumers and capex strength may be more priced in than not."
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In a look at long-only active portfolios, Subramanian finds that positions in the groups seen as "AI disruptees" - namely information-technology services, consumer finance, and software - are sitting close to their lowest levels. At the same time, investors have placed industrials at almost peak weights when compared with consumer discretionary. Within sectors, BofA says fund managers' biggest tilt is toward electronic equipment, instruments and components.
She also flagged that higher paying roles within those AI disruptee industries look increasingly vulnerable, and she expects "a continued trade down amid white collar professionals from wants to needs." That shift is showing up in how investors favor staples over discretionary. Over 12 months, the S&P 500 Consumer Staples Index gained 4.6% while a consumer discretionary gauge slipped 3.3%. Two high profile discretionary names, Lululemon Athletica Inc. and Nike Inc., are each down about 50% in that span.
Subramanian called current positioning "justified," noting that a swing from consumption to capex has been a core investment view this year. In their November outlook, BofA favored "capex over consumption," with AI-related spending seen as the "ballast." More recently, the bank said investors might want to "get bulled up," citing a risk backdrop that had tilted to the upside alongside sturdy consumer spending and healthy balance sheets.
Net of all that, portfolios look built around capex winners and thriftier consumers. If that holds, the tug-of-war between industrial strength and belt tightening at the mall could keep shaping what leads and lags next.
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