Best An analyst for Goldman Sachs stocks

warns that the AI bubble could burst soon.

 

 

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

Jim Covello, head of equity research at Goldman Sachs, thinks the emerging AI sector may be due for a harsh awakening.
Months after starting at Goldman, Covello watched intently as thousands of employees were laid off during the dot-com bubble burst, as reported by the New York Times.

In a well publicized research article published in June, he gave a strong warning, claiming that the billions of dollars being invested in AI firms could not yield a sufficient return and that the current generation of AI tools is just not good enough to produce a meaningful increase in productivity.

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

The report signaled a major shift in thinking for many venture capitalists, who were beginning to worry that a burgeoning bubble might be about to pop.

In his study, Covello made the prediction that once businesses discover how much pricey AI technologies reduce their earnings, they will eventually reduce their expenditure.

He also doesn’t discount the possibility that a crash akin to the dot-com bubble may be imminent.
“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 New York Times. I therefore sincerely search for my blind spots every day. In what situation would I be incorrect?

Covello is by no means the first one to warn of an approaching AI bubble. Days before Covello’s report, in a June blog post, Sequoia Capital partner David Cahn contended that the tech sector as a whole would need to produce $600 billion in revenue annually to stay afloat.
He cautioned that although “speculative frenzies are part of technology, and so they are not something to be afraid of,” artificial intelligence technology is far from being a “get rich quick” scam.

Some analysts have made clear similarities to the dot com bubble, including Jeffrey Gundlach, the billionaire CEO of DoubleLine Capital.

“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.