There’s no shortage of bubble talk in 2024 and with Nvidia now more valuable than Apple (according to “Mr. Market,” anyway), you can expect the decibel level around such banter to increase as we head into the summer.

Generally speaking, critics argue that while the widespread adoption of AI may well presage a productivity boom at some point, and while we might indeed be witnessing the dawn of a new technological epoch, it’s early days and late-cycle. That is: A recession’s likely before the revolution, and stretched multiples don’t play well with an elevated Fed funds rate.

We can debate all of that until we’re Smurfs (blue in the face), but the point of this brief piece isn’t to delve into the fundamentals. Rather, I wanted to highlight a new BofA derivatives update that found its way into some of the mid-week market coverage. “FOMO, extreme momentum and US tech dominance feels bubbly,” the bank said, noting that since last year, US equities have seen higher vol on up days than down days (figure on the left, below).

Regular readers are familiar with that dynamic. “Spot up, vol up” can be inauspicious. It suggests “panic” grabbing for upside exposure — fear of the right-tail, so to speak. BofA’s team also noted that momentum was the strongest in a century earlier this year (figure on the right, above).

“This, plus the sheer dominance of the ‘Magnificent 7’ stocks [which] have a combined market cap that exceeds the second through fifth largest countries within global equities today, has many fearing an asset bubble,” the bank wrote.

The good news is, vol doesn’t actually point to a bubble yet. Or at least not in BofA’s narrative. Rising volatility is a telltale bubble sign, the bank emphasized, pointing to the figure on the left, below.

Across nine historical bubbles looking back 100 years, vol rose in each one of them. BofA explained the simple mechanics: “As asset prices begin to trade purely on momentum and belief in the ‘greater fool,’ volatility rises as prices break free from their tether to fundamentals [while] in economic disruption, forward visibility of earnings deteriorates, further supporting volatility.”

And yet, the figure on the right suggests single-stock vol hasn’t really picked up since ChatGPT stormed onto the scene. “The 2000s bubble witnessed both rising stock volatility but also low stock correlation as tech decoupled from ‘bricks & mortar’ companies,” BofA went on, adding that although stock correlation’s low in the US, “volatility has yet to materially rise, suggesting we may still be far from a bubble.”

Let’s say it’s not a bubble. Yet. Could it become one? Well, sure. BofA cited Jensen Huang’s “new Industrial Revolution” boast in dryly noting that if he’s correct in his grandiose pronouncements about the world-changing potential of AI, “it may be hard for investors to resist pulling forward perceived future growth.” Between that temptation and modern markets’ inclination to chase momentum, an honest-to-God bubble could easily inflate.

That said, “it could be years in the making with numerous disruptions along the way,” BofA wrote, in the course of suggesting that “based on volatility, valuation and returns,” the situation today “looks closer to 1995 than 1999.”

Then, the bank braved the most dangerous phrase of them all: The “sheer size” of the mega-caps today compared to the 2000s tech leadership could mean “this time may be different.” Dun dun duuun!