The AI investment trend is about to stage a "super switch"? Bank of America bets on resource stocks and the "BATX" four giants in China leading the new AI main line

According to the latest views from the strategist team at the financial giant Bank of America (BofA), investors can better allocate and participate in the AI-driven investment boom by combining AI-related investment targets with stocks that are closely linked to global economic growth and are much cheaper in valuation compared to American tech giants (such as resource stocks). These economically linked stocks are expected to benefit significantly from the substantial increase in human productivity brought about by AI technology.

Additionally, the latest report from Bank of America indicates that in the latter half of this decade (2025-2030), the market will be more inclined towards China's four major tech giants rather than the seven giants of the U.S. stock market. The focus of Bank of America is on "BATX," which represents Baidu, Alibaba, Tencent, and Xiaomi.

Bank of America also stated that the market is more inclined towards building safety systems, national intervention, demographic/technological transitions, and new asset investments, while globalization, the independence of the Federal Reserve, and the "Magnificent Seven" of the U.S. stock market, which were once the darlings of the global market (2020-2025), may be seen as having passed their peak.

The so-called "Magnificent Seven" tech giants, which account for a significant weight (about 35%) in the S&P 500 and Nasdaq 100 indices, include Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Facebook's parent company Meta Platforms. They have been the core driving force behind the S&P 500's record highs and were once viewed by top investment institutions on Wall Street as the most capable combination to bring substantial returns to investors amid the largest technological transformation since the internet era. However, as the valuations of these tech giants continue to reach new highs and their weight increases, the market is beginning to worry that these tech giants are getting closer to the "moment of bubble burst."

An Alternative Bet on AI—Resources and UK Stocks

The strategist team led by Michael Hartnett, known as "Wall Street's most accurate strategist," wrote in the report that given the London stock market's high exposure to the resource sector, investors betting on the high-growth AI sector should actively go long on resource stocks and the UK stock benchmark index, rather than being overly crowded in the U.S. tech sector.

The rapid construction of AI data centers is continuously driving up the strong demand for energy and commodities (such as copper)—a key component in various technology fields from pipeline systems to power cables to electric vehicles. Bank of America stated that the UK stock market benchmark—the FTSE 100 index—includes some of the world's largest mining giants such as Rio Tinto Plc, Anglo American Plc, and Glencore Plc.

Copper is widely used in electricity, construction, industrial machinery, transportation, and communication, which are core areas of global economic activity. Therefore, when governments implement policies to promote economic growth, and during the capacity expansion of "new drivers of global economic growth" like artificial intelligence and energy transition, the demand for copper in industrial production and infrastructure construction will significantly increase Copper prices have risen as a result; conversely, when the pace of economic expansion stagnates or falls into recession, and the global economy lacks new momentum, the demand for copper sharply declines, and copper prices typically fall rapidly. Therefore, copper metal has the nickname "Dr. Copper."

In the era of artificial intelligence and digital transformation, the construction of data centers has led to explosive growth in copper demand. Data centers' power transmission and high-speed interconnection systems, as well as cooling systems and high-performance electronic devices, are highly reliant on copper. This structurally new demand is gradually becoming a new growth engine for the copper market.

In the massive data centers behind generative AI applications like ChatGPT, copper metal is primarily used in power distribution equipment and grounding, along with interconnection systems that are extremely important for high-speed data transmission. Specifically, copper is focused on high-speed power transmission (such as high-speed copper cables, connectors, busbars), as well as heat exchangers and water tanks, grounding and interconnection, and piping and HVAC systems.

"Artificial intelligence is consuming commodities," wrote the Bank of America team led by Hartnett. As shown in the above chart, the market has begun to price in that future resource companies will benefit from the AI-driven transformation of human productivity, and this pricing is reflected in the fact that mining stocks have outperformed the Nasdaq 100 index, known as the "global technology stock barometer"—mainly due to the AI frenzy driving commodity demand.

The Bank of America team led by Hartnett also stated that the UK stock market offers significant exposure to defensive investment sectors, which can hedge against the substantial correction risks brought by the excessive extension and crowded positions in tech stocks; the London market benchmark valuation includes global large healthcare companies such as AstraZeneca Plc and GSK.

The Bank of America's strategist team also pointed out that there are preliminary signs of a "bubble" market pattern in terms of stock market price trends, valuations, concentration, and speculative behavior. At the same time, leading indicators of inflation are turning upward, such as the ISM services "prices paid" index rising. Nevertheless, these strategists generally indicate that historical statistics show that a very strong tightening of monetary policy is needed to end periods of excessive asset price increases, and in the past two months, no central bank globally has made significant interest rate hikes.

Bank of America Bets on "BATX"

In the past two years, global investors' bullish interest in AI-related stocks has shown no signs of waning. The "Bank of America AI Leaders Basket," composed of AI leaders such as Nvidia, Micron Technology, and Palantir Technologies, has soared over 450% since the beginning of 2023, outpacing the Nasdaq 100 index, which is primarily tech stocks, by a factor of three.

However, in the view of the Bank of America strategist team led by Hartnett, the "seven major tech giants" in the U.S. stock market among these AI leaders may no longer be the largest beneficiaries of the AI boom in the future. The Bank of America strategy team bets that the "seven tech giants" will give way to tech giants from the Chinese stock market, namely the Chinese tech leaders "BATX" — Baidu, Alibaba, Tencent, and Xiaomi.**

Three years after foreign capital withdrew en masse and proclaimed the Chinese market "uninvestable," foreign investors are making a significant return to the Chinese stock market, trying to seize the unprecedented investment opportunities in Chinese tech stocks driven by cutting-edge technologies such as artificial intelligence, robotics, and innovative pharmaceuticals, as well as the growing demand for diversification away from U.S. assets as the "American exceptionalism" narrative gradually collapses due to a series of radical measures by Trump.

This year, China's continuous breakthrough progress in cutting-edge technologies such as artificial intelligence adoption and penetration, semiconductor and innovative drug development has made foreign investors, including Wall Street asset management giants, increasingly believe that negative events such as the U.S.-China trade war and Washington's technology export bans have not stifled the innovation and resilient economic expansion of the world's second-largest economy. Major Wall Street giants like Citigroup, Invesco, and Goldman Sachs have all raised their ratings on Chinese stocks to "overweight."

The wave of enthusiasm for artificial intelligence and robotics has sparked a "tech stock carnival moment" for Wall Street regarding the Chinese stock market, a temporary ceasefire in the U.S.-China tariff battle, and a further boost in the domestic monetary easing environment has heightened global capital's bullish sentiment towards the Chinese stock market (including Hong Kong and A-shares). The influx of capital has resulted in the Shanghai Composite Index approaching 3,900 points, reaching a ten-year high last week, while the benchmark index of the Hong Kong stock market — the Hang Seng Index — hit its highest level in four years.

International financial giant Nomura from Japan recently raised its target points for the MSCI Asia Pacific ex-Japan Index and the MSCI China Index, stating that it maintains a "strategic overweight" stance on Chinese stocks, particularly favoring semiconductor and technology stocks closely related to artificial intelligence.

Another Wall Street giant, Morgan Stanley, recently released a survey report showing that U.S. investors are exhibiting far greater interest in Chinese stocks than from 2021 to 2024. Among them, AI humanoid robots, biotechnology, and innovative consumer sectors are the main focus. The institution emphasized that the positive investment interest of U.S. investors in Chinese stocks is the highest since the COVID-19 pandemic: roadshows span the East and West coasts. Whether from an index perspective or targeting specific themes and structural opportunities, the level of attention U.S. investors are paying to the Chinese market is quite surprising.

Morgan Stanley stated that over 90% of U.S. investors explicitly expressed their willingness to increase their allocation to China, the highest level since the peak of the Chinese stock market in early 2021. The bank pointed out that multiple factors are driving the rebound in investment willingness, and since the beginning of the year, U.S. investors have agreed with the institution's more constructive view on China, having recommended increasing A-share holdings since June and favoring thematic investment opportunities in artificial intelligence, robotics, and semiconductors. **

Wall Street's bullish sentiment towards Alibaba is particularly strong—evident in "Cathie Wood" Wood's large purchases of Alibaba and JP Morgan and other Wall Street giants significantly raising Alibaba's target price (JP Morgan raised Alibaba's target price from $170 to $245). As an outstanding representative of China's artificial intelligence sector, Alibaba's stock price is still far below its historical peak, while major U.S. tech giants' stocks have also reached their peaks in recent months.

When Alibaba and Tencent showcase labels such as "covering cutting-edge AI large models + powerful cloud AI computing power system + complete AI application software developer platform," and as these labels scale with AI application software penetrating various industries in China, the future market size is expected to rival that of Amazon AWS and Microsoft, potentially triggering a similar investment boom in 2023-2024 as global funds flow into North American cloud computing giants. In comparison, Alibaba's current market value is only $450 billion, while Amazon and Microsoft are valued at $2.37 trillion and $3.8 trillion, respectively.