Bank of America says rising bond yields aren't a threat to AI trade yet

Bond yields would have to climb substantially higher than they are today before threatening the artificial intelligence trade, Bank of America has told clients, according to MarketWatch .

The bank's analysts note that AI-sector profits have been rising fast enough to stay ahead of stock-price gains, a dynamic that has compressed rather than inflated valuation multiples, according to MarketWatch. That dynamic reduces the sector's vulnerability to rising rates, the bank argues.

Bank of America also pointed to its proprietary bubble risk indicator as a reason for confidence. Readings from that measure leave analysts at the bank sanguine about U.S. equities, with the bank adding that any near-term sell-off would prove short-lived, according to MarketWatch.

The reassurance comes as climbing global bond yields have prompted investor concern about stretched valuations in the AI trade. Higher yields typically weigh on growth stocks by increasing the discount rate applied to future earnings, making lofty valuations harder to justify.