A senior Goldman Sachs executive says the first quarter earnings season was broadly exceptional, but warns that speculative behavior is beginning to emerge in one specific corner of the market that warrants close attention.
In a new episode of Goldman Sachs’ Breaks of the Game podcast, Tony Pasquariello, global head of hedge fund coverage at Goldman Sachs, says the overall earnings picture has been strong enough to justify the AI rally, but that signs of excess are starting to appear around the edges.
“The Q1 reporting period was every bit terrific. Including the private equity marks, we’re looking at high, high teens year-over-year growth. In the context of 2% real GDP growth, I think it’s some form of remarkable. Clearly, AI has been a bit of a rocket ship. I think most of what we’ve seen has been justified by the earnings story and the profit story.”
On the warning sign he is watching most closely, Pasquariello says the rapid accumulation of leveraged assets in the semiconductor space offers solid evidence that investor behavior is shifting from conviction to speculation.
“There’s now more than a hundred billion dollars of assets in levered ETFs on US semiconductors. That’s happened very quickly. There have been some of these one-off days or one-off single stocks, where call option volume is extraordinary. Whether it’s the professional trading class or the retail class, I do think people have dialed up the intensity of the risk-taking. I think the fundamentals are there, but I’d say people are getting a bit excited.”
Pasquariello says the final chapter of Q1 earnings season has not yet been written, with Nvidia’s results due on May 20th still to come.
Photo by Mackenzie Marco on Unsplash
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