Bank of America says the market's love affair with expensive stocks looks like early 2000, and it's telling clients not to trust the rally that got them here.
The S&P 500 just closed its best quarter since 2020, up roughly 9% for the year, and Bank of America's response is a warning that most of that gain could vanish before December. The bank's equity strategist Savita Subramanian is holding her year-end target at 7,100, a level that sits about 5% below where the index trades today. That's not a typo. Bank of America thinks the index goes down from here, not up.
The reasoning turns on a specific and unusual signal. Bank of America's strategists wrote that speculation is hitting extreme levels as high multiple stocks have gapped up demonstrably, an event that has historically preceded a valuation snapback, according to a report from Fortune. In plain terms, expensive stocks have been beating cheap stocks by a margin the bank hasn't seen since February 2000. That month sat right at the top of the dot-com bubble, weeks before the Nasdaq began its two-year collapse. Bank of America isn't shy about drawing that line itself.
Look at what's actually driving the 9%. Micron Technology is up 242% so far this year, and its high-bandwidth memory chips, the specialized DRAM that AI data centers depend on for training runs, are sold out for all of 2026. Fortune reported the stock is now more stretched above its 200-day moving average than at any point since 1984. That's not a company milestone. That's a chart doing something it hasn't done in four decades.
Micron isn't alone, but it's the clearest case of what Bank of America means by buy-the-dream pricing. The bank's own tally, reported by Axios and Yahoo Finance, puts seven of its ten bear-market indicators in triggered territory, and says the S&P 500 is statistically expensive on 17 of 20 valuation metrics it tracks, rich against even its own dot-com-era comparisons on eight of them.
Not everyone is waiting to find out if Bank of America is right. Michael Burry, the investor who became famous for calling the 2008 housing crash, has added short positions against Nvidia and Applied Materials to an existing short on Micron, according to a report from 24/7 Wall St. Burry's bet is a wager that the memory and equipment names carrying this rally are priced for a future that doesn't show up.
Bank of America isn't calling for a crash. A 5% pullback from a target set back in December, before the AI trade accelerated further, is a modest call dressed up in alarming language. But the bank has been consistent. It told clients to take profits in June, according to Fortune, right before the Nasdaq dropped 7% over the following days. It flagged a summer correction in May, per CNBC, weeks before the market instead ripped to its best quarter in six years.
That track record cuts both ways. Bank of America has been early and wrong on timing before, even when its underlying diagnosis of stretched valuations wasn't unreasonable. The bank isn't arguing that AI spending is fake or that Micron's chips aren't selling. It's arguing that the price paid for that growth has stopped tracking the growth itself, which is a different problem and a harder one to time.
For founders and investors building on top of this rally, the gap Bank of America is pointing to matters more than the headline number. A market where financials, healthcare and consumer discretionary sit in the red on positive earnings, while a handful of chip and AI names carry the entire index, is a market with a narrow foundation. Narrow foundations hold up fine, right up until the moment they don't.
Also read: South Korea Turns an AI Chip Tax Windfall Into a New National Fund • Chip stocks tumbled this week as investors doubt the AI spending payoff • Bitcoin holders are buying the dip even as traders brace for another leg down
