Banking titan Goldman Sachs warns that a sharp turn in the AI trade could be the catalyst that finally breaks the S&P 500’s bull market.
In a new episode of the bank’s This Is the Markets podcast, Shawn Tuteja, who oversees ETF and custom baskets volatility trading within Goldman’s Global Banking & Markets division, says the market’s gains have become dangerously concentrated in AI-linked stocks.
According to Tuteja, the S&P 500’s multi-year bull market could come to a screeching halt if investors sniff out that the massive AI spending is failing to deliver solid returns.
“If you take a look at it since the start of ChatGPT, since the start of the AI trade a couple of years ago, the S&P is up about 85%. But what’s interesting is if you take out the AI names in the S&P, the returns are only about 31 or 32%. That just shows you that the market has bet a lot on this AI trade, and there’s a lot of returns in the AI trade.
If companies came out and said, we don’t think the ROIC is there on the AI trade, that’s a problem. That would be the bull market trend breaking.”
Just last week, reports emerged that Big Tech is collectively allocating $655 billion in AI spend this year. Leading the pack is Amazon’s $200 billion CapEx allocation, followed by Google’s $180 billion guidance.
In a recent filing with the U.S. Securities and Exchange Commission, Google said its massive AI investment is a major risk factor, noting that it could damage earnings and increase liabilities.
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