Goldman Sachs CEO Foresees Stock Market Drawdown Amid AI Surge
David Solomon, CEO of Goldman Sachs, has issued a cautious outlook for global equity markets, warning that a significant market drawdown is likely within the next 12 to 24 months. Speaking at Italian Tech Week in Turin, Solomon highlighted the cyclical nature of markets and the risks associated with rapid technological acceleration, particularly driven by artificial intelligence (AI).
Solomon drew comparisons to the late 1990s and early 2000s internet revolution, which spawned some of the largest companies today but also culminated in the infamous dotcom bubble. He cautioned that like then, today’s AI boom has led to market enthusiasm that may be outpacing the actual potential of underlying technologies and companies.
“Markets run in cycles, and whenever we’ve historically had a significant acceleration in a new technology that creates a lot of capital formation, you generally see the market run ahead of the potential… there are going to be winners and losers,” Solomon said.
He added, “I wouldn’t be surprised if in the next 12 to 24 months, we see a drawdown with respect to equity markets… I think that there will be a lot of capital that’s deployed that will turn out to not deliver returns, and when that happens, people won’t feel good.”
The AI sector has rapidly become a focal point for investors, with high-profile companies such as Microsoft, Alphabet, Palantir, and Nvidia benefiting from the surge in AI-related interest and investment. This enthusiasm has pushed major stock indexes to record highs despite earlier volatility influenced by geopolitical and trade tensions. However, the fervor surrounding AI has also raised concerns about a potential bubble. Solomon emphasized that while he refrains from labeling the situation as a bubble, the current investor sentiment is heavily skewed towards optimism, often overlooking possible pitfalls.
“I’m not going to use the word bubble, because I don’t know, I don’t know what the path will be, but I do know people are out on the risk curve because they’re excited,” Solomon noted. “When [investors are] excited, they tend to think about the good things that can go right, and they diminish the things you should be skeptical about that can go wrong.”
He concluded that a market reset or correction is inevitable at some point, with the scale depending on the duration of the current bull run.
Additional Industry Perspectives on AI and Market Risks
Solomon’s warnings are echoed by other prominent figures in the financial and technology sectors. Amazon founder Jeff Bezos described AI as being in an “industrial bubble” during the same Italian Tech Week event. Veteran investor Leon Cooperman also expressed caution, suggesting that the current phase resembles the late innings of a bull market where speculative bubbles tend to form, a sentiment aligned with warnings from Warren Buffett. Karim Moussalem, Chief Investment Officer of Equities at Selwood Asset Management, highlighted the “enormous risks” facing the AI trade, comparing it to some of the greatest speculative manias in market history. Moussalem manages a market-neutral equity strategy at the London-based hedge fund and recently shared his concerns on LinkedIn.
Balancing Caution with Optimism on AI’s Future
Despite the cautionary outlook, Solomon remains optimistic about the transformative potential of AI technology. He emphasized his confidence in the ongoing expansion of AI applications and the formation of new companies that can harness this technology to deliver substantial enterprise value.
“I sleep very well. I’m not going to bed every night worried about what will happen next,” Solomon said. “Generally speaking, I think what’s super exciting is the technology is expanding, new companies are being formed, and the potential of this technology deployed into the enterprise can be very, very powerful. So, it’s an exciting time.”
FinOracleAI — Market View
Goldman Sachs CEO David Solomon’s forecast signals a critical juncture for investors navigating the AI-driven equity rally. While the enthusiasm for AI innovation propels valuations to new heights, historical precedent and expert opinions underscore the risks of an impending market correction.
- Opportunities: Continued technological innovation in AI can generate new market leaders and long-term growth.
- Risks: Overvaluation and speculative excess may trigger significant capital losses during a market drawdown.
- Market Timing: The potential correction within 12-24 months suggests a need for cautious portfolio rebalancing and risk management.
- Diversification: Investors should consider diversifying beyond high-flying AI stocks to mitigate concentrated risk.
Impact: Solomon’s balanced perspective highlights an imminent market adjustment amid AI exuberance, advising vigilance while recognizing AI’s transformative potential in reshaping industries and investment landscapes.
