Bank of America Raises S&P 500 Target Despite ’Derating’ Alarm for Megacap Stocks
Wall Street's bullish bet faces a megacap reality check.
The Contradiction
Bank of America just boosted its S&P 500 price target while flashing warning signals about megacap stock valuations. The upgrade comes with strings attached—analysts see trouble brewing in the very stocks driving recent market gains.
Derating Danger Zone
Megacap equities face potential multiple compression as growth expectations collide with economic realities. The same stocks that powered the index higher now threaten to drag it down.
Selective Optimism
BofA's revised target suggests confidence in broader market resilience despite megacap vulnerabilities. The bank sees value emerging outside the usual tech titans.
Because nothing says 'confidence' like raising targets while warning about your biggest holdings—classic Wall Street hedging at its finest.
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The bank notes that improving operating leverage and lower wage inflation could boost corporate profits, while other sectors beyond tech could benefit from lower interest rates and the “AI train.” At the same time, it warned that megacap stocks have been spending heavily on AI, and a failure or delay in monetization could lead to “capital raising and derating.”
Deutsche Bank Issues Warning on Economy
Deutsche Bank has a similar opinion on what WOULD happen if AI spending disappoints, warning that the economy has been spared from a recession because heavy investment in AI has propped up growth and business sentiment.
“AI machines—in quite a literal sense—appear to be saving the U.S. economy right now,” wrote Deutsche Bank’s George Saravelos in a note to clients. “In the absence of tech-related spending, the U.S. would be close to, or in, recession this year.”
Deutsche Bank added that AI is still an unproven industry and that AI investments must “remain parabolic” in order to support gross domestic product (GDP).
