Goldman Sachs executive Ashok Varadhan says the AI trade still has room to run despite signs of investor exuberance.
In a new installment of the bank’s The Markets podcast, the co-head of Global Banking & Markets at Goldman Sachs believes that the current AI-driven market cycle represents a long-term structural shift rather than a passing fad.
But while Varadhan believes that investors are better served by staying positioned for AI’s longer-term productivity payoff, he notes that it would be prudent to hedge against volatility and downside risks.
“I think the trade is to stay invested, but I would definitely use sort of this low level of volatility to find ways to protect yourself with convexity.”
He highlights that AI’s rise is not a short-term phenomenon, arguing that the technological and capital cycle began much earlier than most recognize.
“I don’t mind staying in [the AI trade]. I understand, of course, that, on any given day, it can feel like there’s exuberance. But if you take a step back, I think… the investment in this technology, this isn’t a sort of Q4 2025 phenomenon. This sort of started in earnest in sort of March 2023 and has been continuing. I’m not smart enough to know that if 10 quarters in, that’s the top.”
As for a hedging candidate, Varadhan says he’s looking at the US dollar, which has lost over 9% of its value this year against a basket of major currencies.
“You can buy calls on the dollar fairly cheaply. If you end up getting some sort of flight to quality trade, I think the dollar could do very well.”
On Friday, the Nasdaq 100 index dropped by 3.49% after President Donald Trump imposed additional tariffs against China.
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