(Bloomberg) -- Wall Street is so divided on whether the US stock market’s meteoric rise has gone too far, too fast that even Bank of America Corp.’s own strategists disagree.

There is little evidence that the frenzy for artificial-intelligence is pushing the market into bubble territory, according to BofA’s Savita Subramanian.

The bank’s head of US equity and quantitative strategy once again pointed to strong earnings and a resilient US economy and sees further room for gains. Her view runs counter to what the firm’s chief investment strategist Michael Hartnett said last week. 

“There’s no broad spread euphoria,” Subramanian said in a joint interview with Jill Carey Hall, the firm’s head of small- and mid-cap strategy on Bloomberg Television. “The risks are sitting outside of the public market,” adding that private credit and private equity, along with regional banks are where credit risks are bubbling up.

The S&P 500 Index climbed above the significant 5,100 milestone for the first time in history this year, with the gauge already beating the average year-end forecast of 4,962. The benchmark has advanced nearly 8% to start the year after rising 24% in 2023 leaving Wall Street to debate if the stock market is due for a reversal.  

Subramanian’s view appears to diverge from BofA’s Hartnett who said on Thursday that rapid price appreciation and other characteristics of a bubble are forming in the so-called Magnificent Seven stocks and across the world of crypto. 

The firm’s latest fund manager survey showed that while investors are in a risk-on mood, they were snapping up stocks in Europe and emerging markets at the expense of the US and the technology sector.

Subramanian does see some risk for US stocks, but to the upside. If the torrid rally in the big AI players continues that could eventually lead to a pullback and result in a 5% correction for the S&P 500.

“I see large caps as safer until we start to see the Fed really cut interest rates,” Subramanian said. No rate cuts is a “risk for some of these more credit sensitive areas like real estate and small-caps at large.” 

Looking at beaten down-small cap shares, the Russell 2000 Index now trades in-line with its long-term average multiple, though it remains at a near-record discount versus its larger counterparts, according to Hall.

“We are positive on small caps this year but within financials,” Hall said. “Larger banks have looked a bit better than smaller banks, but I think there’s still opportunity within the regionals. This is a market where stock picking makes sense.”

The AI craze has surprised Wall Street forecasters and spurred a race among strategists to keep up with a stock market rally that’s already blown past their expectations. 

Earlier this month, Subramanian raised her S&P 500 year-end target to 5,400, tied for the highest on Wall Street, in a survey of nearly two dozen sell-side strategists tracked by Bloomberg. It implies a nearly 5% upside from Monday’s close. She joins the ranks of Ed Yardeni of Yardeni Research and Jonathan Golub of UBS Group AG, who both hold the same year-end outlook. 

Last week, Subramanian said the rally in US equities doesn’t reflect conditions seen in prior boom-and-bust cycles, such as big gaps between share prices and their values, or the significant use of leverage.

The S&P 500 Index edged lower on Tuesday, poised to extend last week’s decline, with traders on alert for the Federal Reserve’s policy decision Wednesday when it will release fresh projections on how many interest-rate cuts policymakers are expecting to deliver this year. At one point Monday, swaps traders put the odds of a June rate cut at less than 50%. 

In Bank of America’s latest fund manager survey, investors were split on whether or not artificial intelligence stocks are in a bubble, with 40% saying yes and 45% answering no.

--With assistance from Farah Elbahrawy and Alexandra Semenova.

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