(US Dollar Defense)—Goldman Sachs CEO David Solomon has issued a stark caution about the stock market’s trajectory, predicting a pullback as the artificial intelligence craze shows signs of overextension. Speaking at Italian Tech Week in Turin on October 3, Solomon drew direct comparisons to historical tech surges that ended in painful adjustments for investors.
He described the inevitable ups and downs of market behavior this way: “Markets run in cycles, and whenever we’ve historically had a significant acceleration in a new technology that creates a lot of capital formation, and therefore lots of interesting new companies around it, you generally see the market run ahead of the potential … there are going to be winners and losers.”
This observation points to the dotcom boom of the late 1990s, when the internet sparked massive innovation and company creation, but also triggered widespread financial losses as overhyped ventures collapsed. Many investors poured money into unproven ideas, only to watch valuations evaporate when reality set in. Solomon sees echoes of that era in today’s AI landscape, where rapid advancements have lured capital but may not sustain the current enthusiasm.
Applying this lesson to the present, Solomon added, “You’re going to see a similar phenomenon here.” He went further, forecasting specific timing and consequences: “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.”
Such a drawdown could ripple through portfolios heavily weighted in tech stocks, forcing reallocations and potentially curbing speculative bets. The S&P 500 and other major indices have climbed to repeated records on the back of AI investments in companies like Nvidia, Microsoft, Alphabet, and Palantir, even as earlier trade policy shifts under President Trump temporarily pressured values. Yet Solomon’s view suggests this momentum could reverse if promised AI breakthroughs fail to materialize at scale, leaving behind a trail of underperforming assets.
Solomon avoided labeling the situation outright but acknowledged the psychological drivers at play. “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,” he said. He continued, “And 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.”
This mindset often leads to overlooked red flags, such as high energy demands for AI data centers, regulatory hurdles, or competition that erodes early advantages. Investors chasing quick gains might ignore these factors, amplifying vulnerability when sentiment shifts.
These concerns align with broader unease in the investment community. Amazon founder Jeff Bezos recently described AI as entering an “industrial bubble,” though he expects long-term societal gains despite short-term excesses. Similarly, a prominent UK tech investor has flagged “disconcerting” signals in skyrocketing AI valuations, warning of potential corrections ahead.
Not all assessments agree on the severity—some metrics show AI stock price-to-earnings ratios remain below dotcom peaks, and the Federal Reserve’s rate cuts could provide a cushion unlike the hikes that exacerbated the 2000 bust. Still, hedge funds are positioning for fallout, and industries tied to AI infrastructure face elevated crash risks over the next two years.
Despite the market jitters, Solomon has maintained a measured outlook on the economy at large. In a separate comment earlier this year, he assessed the odds of a U.S. recession as “very small,” even with ongoing global trade tensions. This suggests any stock drawdown might stem more from sector-specific hype than widespread downturns, allowing for recovery through diversified strategies and prudent capital allocation. Investors would do well to heed such warnings, balancing innovation’s promise with the discipline of risk management.
