Concerns about an artificial intelligence bubble are on the rise — but many investors are willing to put them to one side in the quest for mounting returns. In the most recent iteration of Bank of America’s Global Fund Managers Survey, a potential AI bubble was identified as the biggest tail risk to markets. The survey polled 166 fund managers, who collectively oversee assets worth $400 billion, between Oct. 3 and 9 — a third of whom named an AI equity bubble as the top threat, up from around one in 10 a month earlier. It marked the first time in the history of the monthly survey that an AI bubble was named as the biggest risk to markets. With capital pouring into AI and AI-adjacent companies , stocks have boomed this year — but increasingly, major institutions and influential figures are issuing warnings about soaring valuations. More than 50% of fund managers told BoA this month that they already believe AI stocks are in a bubble, while a record 60% of those polled said global stocks are overvalued. One month earlier, 41% of respondents had said stocks were in a bubble. However, those concerns weren’t strong enough to override a general sense of optimism. Bank of America’s strategists noted in a report on the findings that “positioning shows investors see returns outweighing risks,” as fund managers were the most net overweight on stocks since January — before the volatility sparked by U.S. President Donald Trump’s so-called “liberation day” announcements. Emerging markets became the preferred region for global equity investors in October, according to the BoA survey, while fund managers also remained overweight on European stocks. Banks were the most overweighted sector in Europe, with just 4% of those polled saying they see downside ahead for the industry — even after a first half of bumper returns . “AI-bubble tail risks [are] not enough to dampen optimism,” BoA strategists said in the report on the European survey findings. “Concerns around an AI bubble have increased, rising to the #1 market tail risk, but not by enough to dampen a more positive equity market outlook overall.” ‘Era defining’ Lewis Grant, senior portfolio manager for global equities at Federated Hermes, told CNBC that this year’s stock rally “has been primarily sentiment driven, with fundamentals an afterthought.” “FOMO [fear of missing out] challenges the resolve of even the most disciplined, and there are plenty of reasons to argue that this time is different,” Grant said. “AI as a technology is era defining, with the associated market rally led by established, well capitalised, mega-cap companies. The story is compelling, but that is only part of an investment process. Fundamentals and valuations can only be ignored for so long.” Grant added that although his team is bullish on the long-term investment case for AI, there were risks around investing in the space — and an intense focus on the tech could lead to other opportunities being missed. “Such intense capital expenditure, with payoffs uncertain in terms of quantum and timeframe, leave the AI rally vulnerable to sudden shifts in risk appetite,” he said. “We see opportunities in Europe as the industrial machine begins to turn, although admittedly that may take time to get into full swing and comes with its own set of potential challenges,” he said. Meanwhile, Victoria Fernandez, portfolio manager and chief market strategist at Crossmark Global Investments, told CNBC that a bubble could form around AI, even if it hadn’t already done so. “I don’t think we are in an AI bubble quite yet, although we could get there fairly easily depending on how valuations move,” Fernandez said. “We have seen herd behavior, as I can’t think of a single investor — institutional or retail — who doesn’t talk about AI stocks as part of any conversation around the markets. Where we are not seeing the bubble sign yet is at the earnings level — so far, companies have been able to support valuations with strong cash flow and solid profitability.”