Goldman Sachs CEO David Solomon, one of the top executives on Wall Street at one of its most storied investment banks, has a take on the AI investment bubble. It’s just the same as any other time a lot of capital chased a boom in one sector of the economy. But he insists he’s “not smart enough” to know whether it’s a bubble or not.
What he’s sure about is that “it’s not different this time.”
Speaking on Friday at a tech conference in Turin, Italy, Solomon said in remarks reported by the Financial Times that this is the kind of thing you see in booms and in busts. “There will be a lot of capital that was deployed that didn’t deliver returns,” he said. That’s no different from how investment works. “We just don’t know how that will play out.”
He added that he’s bracing for markets to come down a bit from a remarkably long-running rally.
“I wouldn’t be surprised if in the next 12 to 24 months we see a drawdown in equity markets, but that shouldn’t be surprising given the run we’ve had,” Solomon said.
The S&P 500 has been on a tear for the better part of the past five years, thanks in part to billions of dollars in AI investment and mega stock gains made by tech companies such as Nvidia. The index, which tracks the broader market, has hit 190 record highs since 2020. At the same time, some investors have raised concern about the index’s concentration, which is at a record high with the top 10 companies now making up about 40% of its total market cap—compared with 20% a decade ago. The S&P 500 was up 15% year to date as of Friday.
A potential AI bubble
Some high-profile names have been clear they believe the current AI-fueled investment craze could be a “bubble.” At the same conference in Turin on Friday, Amazon founder and executive chairman Jeff Bezos said AI was “kind of an industrial bubble as opposed to financial bubbles.” This means the massive amounts of capital invested in AI will bring positive results for society even if share prices ultimately drop, he said. Bezos pointed to the large-scale investment in fiber-optic cable that came out of the dotcom bubble as an example of a benefit that outlasted some of the companies from that era.
Others, like OpenAI CEO Sam Altman, have seemingly acknowledged the possibility that AI could be in a bubble, but have tried to brush away concerns.
“Between the 10 years we’ve already been operating and the many decades ahead of us, there will be booms and busts,” Altman said while touring a giant new data center in Texas, when asked about a potential AI bubble this week. “People will overinvest and lose money, and underinvest and lose a lot of revenue.”
In August, Altman sent ripples through the market when he uttered the actual word “bubble,” and a day later all the Magnificent Seven companies saw selloffs, bringing the tech-heavy Nasdaq down about 1.5% and the S&P 500 down 0.6% in what became a multiday market wobble.
For his part, Solomon said Friday he was interested to see how AI will boost productivity and predicted the “business of work will be transformed by AI globally.”
Goldman is one of the many companies integrating AI into its operations. Its software engineers saw a 20% boost from using AI coding assistant tools, the global head of engineering in the banking and markets division, Melissa Goldman, told Business Insider. The firm also has an in-house version of ChatGPT as well as a “banker copilot” tool that some workers in its investment banking division use to work with insider protected information like dealmaking data.
“We are at the beginning of the movie, not the end of the movie,” Solomon claimed.
