Goldman Sachs CEO David Solomon has issued a stark warning, predicting a likely stock market drawdown within the next one to two years. Speaking at Italian Tech Week in Turin, Italy, Solomon suggested that years of being propelled to record highs, largely by the current Artificial Intelligence (AI) frenzy, have run the market ahead of its underlying potential, making a correction inevitable.
“I wouldn’t be surprised if in the next 12 to 24 months, we see a drawdown with respect to equity markets,” Solomon stated. He anticipates that a significant amount of capital deployed into the AI space will ultimately fail to deliver returns. “When that happens, people won’t feel good,” he cautioned.
Echoes of the Dot-Com Bubble
Solomon drew parallels between the current AI-fueled boom and the dot-com bubble of the late 1990s and early 2000s. He explained that historically, periods of significant technological acceleration—which spur capital formation and the emergence of new companies—often see the market getting “ahead of the potential.”
While the mass adoption of the internet led to the foundation of some of the world’s largest companies, it also saw many investors lose money as the bubble eventually burst. Solomon believes a “similar phenomenon”is playing out now with AI, where the excitement is driving investors to take on excessive risk.
The AI Market Run-Up
The AI boom has gripped global markets, pushing major indices like those on Wall Street to record highs. This excitement has translated into massive investments in key technology stocks, including Microsoft, Alphabet, Palantir, and Nvidia. However, the rapid ascent and capital pouring into the sector have fueled concerns about the potential for a speculative bubble.
While refraining from using the term “bubble,” Solomon noted, “I do know people are out on the risk curve because they’re excited.” He added that in times of high excitement, “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.” The length of the current bull run, he believes, will dictate the extent of the eventual drawdown.
Not Alone in the Caution
Solomon’s cautionary outlook is shared by other major financial figures, including Jeff Bezos, Amazon founder, speaking at the same event, flatly characterized the current state of artificial intelligence as an “industrial bubble.” Leon Cooperman, a veteran investor, recently told CNBC that the market is in the “late innings of a bull market where bubbles can form”, echoing past warnings from Warren Buffett. Karim Moussalem, Chief Investment Officer of Equities at Selwood Asset Management, warned of “enormous risks” on the horizon, comparing the AI trade to “one of the great speculative manias of market history.”
Long-Term Optimism Amid Short-Term Caution
Despite his near-term forecast of a market correction, Solomon maintained an overall positive outlook on the underlying technology. He remains optimistic about AI’s potential for expansion and its powerful deployment into the enterprise.
“I sleep very well. I’m not going to bed every night worried about what will happen next,” Solomon concluded. He sees the formation of new companies and the technological expansion as a very “exciting time,” even if a short-term market “check” is on the horizon.
