Bank of America's Michael Hartnett Warns AI Financing Pressures Could Threaten Stocks in 2027
The S&P 500 ended October 22 at 7,623.68, up 11.4% for the year and just 2.5% below its October 6 record. After three years of AI-fueled gains, the index has advanced a more modest 3% over the past three months.
But Bank of America's Michael Hartnett sees a major problem hiding behind the gains. The AI boom depends on extraordinary spending on chips, data centers, and electricity, much of which is financed through the bond market, where borrowing costs are rising and lenders are getting choosier.
BofA semiconductor analyst Vivek Arya estimates major cloud company spending could climb from $860 billion in 2026 to $1.2 trillion in 2027, nearly 40% growth. $AMZN, $GOOGL, $META, and $ORCL issued $194 billion in bonds through July 7, compared with $108 billion throughout 2025, according to Reuters.
Hartnett warns that hyperscaler bond spreads widening beyond 200 basis points could trigger forced selling and broader financial stress. JPMorgan's October analysis found credit-default swap spreads of 50 to 120 basis points for financially stronger AI companies, versus roughly 300 basis points for some infrastructure borrowers and 1,100 basis points for a heavily leveraged borrower.
Yet investors appear confident. BofA's October fund manager survey found that 90% expected either a soft landing or no landing at all, while just 6% anticipated a hard landing. Technology-stock exposure was at its highest overweight since August 2020.
A 20% shortfall against BofA's 2027 spending forecast would still mean 11.6% growth from 2026, but would fall $240 billion short of expectations.
Hartnett outlines three paths for 2027:
• The AI bubble keeps growing, with stocks climbing even as risks accumulate
• A Goldilocks economy, with cooling inflation, easing borrowing costs, and gains spreading beyond technology giants
• A deflationary bust, where credit gets expensive, weaker AI borrowers struggle, and delayed projects hurt chipmakers, contractors, and other suppliers
The article notes that the largest technology companies generate substantial cash, unlike many speculative railroad ventures of the 1870s, a period Hartnett sees as a possible parallel. BofA says the clues will emerge in bond spreads, capital-spending guidance, cash flow, earnings revisions, and evidence of broader market participation.
