Bank of America strategists, led by Michael Hartnett, suggest using limited-risk equity derivatives, such as call spreads, to participate in the Nasdaq 100 rally. This approach allows investors to profit from AI-driven growth while capping potential losses if the market corrects.
The bank’s Bubble Risk Indicator for the tech sector has reached a range of 0.72 to 0.8, a level similar to market conditions six months before the March 2000 dot-com peak. Currently, 18 stocks in the S&P 500 exceed the 0.8 threshold, accounting for 3.2% of the index weight, compared to 50–100 stocks during the 2000 boom.
Market volatility metrics show a divergence: the VIXEQ gauge for single-stock volatility has risen 46% year-to-date, while the broader VIX index for the S&P 500 increased by 13%. This pattern resembles market behavior from the late 1990s.
Capital expenditures by US hyperscalers on AI-related projects are projected at $795 billion for 2026 and $1.08 trillion for 2027. Analysts note that any reduction in this spending could impact the tech stocks currently driving the Nasdaq 100.
