Top Goldman Sachs Stock Researcher Warns AI Bubble May Be About to Explode

"Despite its expensive price tag, the technology is nowhere near where it needs to be in order to be useful."

Ringing the Bell

The head of stock research at Goldman Sachs, Jim Covello, believes that the burgeoning AI industry could be in for a rude awakening.

As the New York Times reports, Covello closely followed the crash of the dot-com bubble months after he started working at Goldman, watching as thousands of workers were laid off.

In June, he issued a stark warning in a widely reported research paper, arguing that the billions of dollars being poured into AI companies may not see a sufficient return and that the current crop of AI tools simply aren't good enough to bring about a worthwhile boost in productivity.

"Despite its expensive price tag, the technology is nowhere near where it needs to be in order to be useful," Covello wrote in the report. "Overbuilding things the world doesn’t have use for, or is not ready for, typically ends badly."

The paper marked a significant turning point, with a number of venture capitalists starting to become wary of an emerging bubble that could be set to burst.

In his paper, Covello predicted that companies will eventually cut their spending once they realize that expensive AI tools significantly cut into their profits.

And he's not ruling out that a dot-com-style crash could be around the corner.

"When you have a view that’s sort of out on a limb, you live in this kind of constant state of paranoia that AI is going to be as big as everybody thinks it is," he told the NYT. "So I am genuinely on the lookout every single day for my blind spots. Where could I be wrong?"

Popping Bubbles

Covello is far from alone in warning of an impending AI bubble. In a June blog post, published just days before Covello's report, Sequoia Capital partner David Cahn argued that the entire tech industry would have to generate $600 billion per year to remain viable.

While "speculative frenzies are part of technology, and so they are not something to be afraid of," he warned, AI tech is anything but a "get rich quick" scheme.

Other experts, like DoubleLine Capital billionaire CEO Jeffrey Gundlach, have drawn direct comparisons with the dot com bubble.

"This feels a lot like 1999," Gundlach said during an X Spaces broadcast in March.

In short, investment bankers are getting wary as major tech companies are pouring billions of dollars into expanding costly AI infrastructure, with returns likely still many years out.

"Having someone from a firm like Goldman ring the bell and say, 'Hey, it won’t become a reality the way everyone thinks' had people asking important questions about what was actually happening," Goldman client and Callodine Group chief executive Jim Morrow told the NYT.

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