BofA Warns of 'Rising Crash' as Nasdaq Volatility Nears 25%

The US stock market is showing signs of a “rising crash” as froth in the artificial intelligence sector pushes a key risk indicator to its highest level since the launch of ChatGPT, according to Bank of America Corp. The warning comes as the Nasdaq’s realized volatility approaches a 25% high even as the index sets new records, a dynamic the bank’s analysts say is a classic feature of market bubbles.

"The Nasdaq's record-breaking 13-day rally has seen realized volatility near its 25% historical high—the S&P 500's gains are even comparable to the COVID-19 period, but without the preceding market stress," Nitin Saksena and other analysts on the bank's derivatives strategy team wrote in a recent report. "This 'rising crash' dynamic is highly consistent with our 2026 forecast for a bubble."

The core of the issue is that as prices for AI-related assets like semiconductors have soared, the cost of insuring against a downturn has also risen instead of falling. This indicates a deep-seated divergence between bullish price action and nervous underlying sentiment. The market faces its busiest week of the Q1 2026 earnings season, with Magnificent 7 members Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN) set to report, putting the AI-driven rally to the test.

The setup creates a volatile backdrop for a week packed with market-moving catalysts. Investors are bracing for an April 29 Federal Open Market Committee interest rate decision and a crucial report on first-quarter GDP and core PCE inflation, alongside earnings reports from five of the seven largest technology companies. According to the BofA report, implied volatility data shows market expectations for turbulence are highest on Thursday, April 30, when several of the reports converge.

Tech Giants Face Earnings Test

The market’s focus is squarely on the five “Magnificent Seven” members reporting this week, with analysts holding a higher-than-consensus view on all of them, according to the BofA note.

For Amazon, Bank of America’s Justin Post expects Amazon Web Services growth to hit 28% year-over-year, beating the 25% consensus and driven partly by revenue tied to its investment in AI startup Anthropic. Zacks Investment Research places the consensus AWS estimate slightly lower at $36.8 billion, reflecting 25.6% YoY growth.

At Microsoft, the key metric remains Azure’s revenue growth as the company rolls out more AI capacity. BofA analyst Tal Liani sees earnings per share of $4.05, just above the $4.04 consensus. The focus will be on the expansion of Copilot paid seats and the stability of non-AI business lines. Our consensus for Microsoft's Intelligent Cloud revenue stands at $34.3 billion, suggesting a 28.5% YoY growth rate.

Alphabet is expected to see benefits from its Gemini model integration, with Post forecasting search revenue growth of 18%. He sees total revenue of $92.0 billion and EPS of $2.69, slightly ahead of the $91.7 billion and $2.66 consensus.

Powell and PCE Add to Volatility

Compounding the earnings pressure, the Federal Fed will conclude its April meeting on Wednesday. BofA analysts expect the central bank to hold rates steady, with Chair Jerome Powell likely to maintain a hawkish tone given that inflationary risks from the war in Iran have not dissipated and the labor market remains firm.

"The consumer is relatively stable," P&G CFO Andre Schulten told Yahoo Finance after its recent earnings beat, highlighting the bifurcated nature of spending that the Fed must navigate.

BofA is forecasting first-quarter GDP growth of 2.4%, significantly above the 1.6% market consensus, with core PCE inflation expected at 3.1% year-over-year. This persistent inflation is the primary reason Powell is unlikely to signal a dovish pivot, keeping pressure on equity valuations, particularly for the long-duration growth stocks that have led the rally.

This article is for informational purposes only and does not constitute investment advice.