Goldman Sachs CEO says AI boom could feed stock market drawdown

Goldman Sachs CEO David Solomon says the stock market will soon experience a “drawdown” as the results from a big investment cycle in AI start to show: “There are going to be winners and losers.”

“I wouldn't be surprised if in the next 12 to 24 months we see a drawdown with respect to equity markets,” Solomon said Friday at the Italian Tech Week in Turin, Italy. “But that shouldn't be surprising given the run we've had.”

Solomon said that with any new technology there is an initial big investment and excitement that eventually runs its course in the market.

“Whenever we've historically had a significant acceleration in a new technology that creates a lot of capital formation and therefore lots of interesting new companies around it, you generally see the market run ahead of the potential,” Solomon said.

The investment banking CEO said we can look back at what happened with the Internet to get an understanding of how things might play out with AI. Many of the companies that came up during the Dot.com boom “went away,” except for companies like Amazon, he added. “You're going to see a similar phenomenon here.”

“I think the journey is pretty clear,” Solomon said. “There'll be a bunch of capital that was deployed that ultimately delivered very attractive returns. And there’ll be a lot of capital that was deployed that did not deliver returns. And you can go back in any super tech cycle or any big investment cycle. And that is the pattern you'll see…it's not different this time.”

“People are out on the risk curve because they're excited,” he said, adding that when this happens they tend to “diminish” the things “that can go wrong.”

Solomon said he thinks “it’s an exciting time” and that the “potential” of AI can be “very, very powerful,” but noted at some point there will be a “reset.”

“The extent to that will depend on how long this goes,” he said.

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