According to Goldman Sachs CEO David Solomon, stock markets are expected to experience a “drawdown” over the next one to two years after being boosted to unprecedented levels by an AI surge.
“Markets go through cycles, and historically, when there’s been a rapid advancement in new technology that generates substantial capital formation, it typically leads to the market outpacing its capabilities … there’s always going to be winners and losers,” he stated during Italian Tech Week in Turin, Italy, on Friday.
Solomon referenced the widespread adoption of the internet in the late ’90s and early 2000s, which not only led to the rise of some of the largest companies globally but also caused investors to incur losses during the infamous “dotcom bubble.”
“You can expect a comparable situation here,” he remarked. “I wouldn’t be surprised if we witness a drawdown in equity markets within the next 12 to 24 months … I anticipate a significant amount of capital invested that will ultimately fail to yield returns, and when that occurs, the sentiment will not be positive.”
A surge in AI has captivated global markets in recent years, leading to a wave of new advancements, multibillion-dollar transactions, and the ongoing rise of ChatGPT developer OpenAI. This has encouraged investors to make substantial bets on technology and invest in stocks such as Microsoft, Alphabet, Palantir and Nvidia.
The excitement surrounding AI has contributed to propelling indexes on Wall Street and beyond to unprecedented heights, despite major U.S. indices being affected earlier this year due to President Donald Trump’s trade policies. Nevertheless, as investors continue to pursue opportunities in AI, concerns about the risk of a bubble collapsing have surfaced.
“I’m not going to label it a bubble, because I’m uncertain, I don’t know where the situation will lead, but I do know that investors are taking on more risks due to their enthusiasm,” Solomon mentioned on Friday.
“When [investors are] enthused, they typically focus on the favorable outcomes that could occur and downplay the potential negative aspects … There will ultimately be a reset, a reality check at some point, resulting in a drawdown. The magnitude of that will rely on how long this [bull run] continues,” he elaborated.
Solomon’s worries about the current market levels are shared by others. During the same event, Amazon founder Jeff Bezos noted on Friday that artificial intelligence is presently in an “industrial bubble.”
Additionally, earlier this week, seasoned investor Leon Cooperman told CNBC that we are in the final stages of a bull market where bubbles can form — a sentiment that Warren Buffett cautioned against.
Karim Moussalem, chief investment officer of equities at Selwood Asset Management, has also raised alarms about “significant risks” looming for the AI trade that could unravel swiftly. “The AI trade is starting to mirror one of the great speculative manias in market history,” Moussalem, who manages a market-neutral equity strategy at the London hedge fund, stated in a LinkedIn post.
While Solomon anticipates some losses, he also conveyed optimism regarding artificial intelligence.
“I sleep soundly. I don’t go to bed every night anxious about what lies ahead,” Solomon remarked on Friday. “On the whole, I believe the exciting aspect is that the technology is advancing, new businesses are emerging, and the potential of this technology implemented in enterprises could be extremely powerful. Hence, it’s an exhilarating time.”
— CNBC’s Hugh Leask and Yun Li contributed to this report
