Goldman Sachs warned of risks for investors in AI stocks. Is the market overheated?

Interest in AI stocks has begun to decline: investors are waiting for evidence of the impact of technology on profits and are increasingly questioning the fairness of the value of securities, Goldman Sachs has warned. The analyst believes that the market is entering a new phase where there will be both winners and losers. He called the main risk a possible slowdown in investment in AI on the part of major technology companies.

Goldman Sachs has warned of near-term risks to AI-related stocks, Yahoo Finance reports. "Our investor discussions and recent stock performance show limited interest in companies with potential AI revenue as investors try to understand whether AI is a threat or an opportunity for many companies," said strategist Ryan Hammond.

Hammond suggested that the excitement around AI stocks is entering a new stage: if earlier investors bought up almost all securities in the sector indiscriminately on enthusiasm, now the market is waiting for evidence of the real impact of AI on profits in the near future. The analyst warned that not all stocks from the sector will grow at the next stage - there will be clear winners and losers. He added that investors are increasingly questioning whether current valuations of US stocks are too high and pointed to overheated valuations of certain players like Tesla and Palantir.

The main threat, according to the analyst, is the "inevitable slowdown" in AI investment by hyperscalers like Amazon, Alphabet, Meta, Microsoft and Oracle, Fortune notes. The analyst believes that big companies' AI investments through capital expenditure are already close to their peak, and this could turn out to be disappointing if their earnings in the coming quarters fall short of expectations. In case of an "extreme scenario" in which capex of hyperscalers returns to 2022 levels, the lost revenue of AI companies will result in a 30% reduction in Goldman's estimate of the sales growth of S&P 500 companies in 2026, which now stands at $1 trillion. In this case, the price/earnings (P/E) multiple of the entire index could fall by 15-20%, the analyst warned.

Nevertheless, Hammond added a note of optimism to his warning. He noted that overall, valuations of AI companies don't look like a bubble yet, which reduces the risk of a sharp collapse in the event of weak earnings growth. He said long-term earnings growth expectations for the S&P 500 and valuations of the largest TMT companies (technology, media, telecom) are now only slightly above historical averages and still far from the levels seen during the tech bubble and in 2021.

According to Goldman, AI stocks are up 32% in 2024 and 17% since the start of 2025. However, concerns are growing on Wall Street that corporate demand for artificial intelligence is slowing along with the U.S. economy, Yahoo Finance notes. The first signals were Nvidia's results: after revising forecasts, its shares fell 6% in five trading sessions.

In addition, the securities of Salesforce and Figma collapsed this week after the reports - their results did not meet expectations, and optimistic statements of the management could not hide the weaknesses.

The overheating of the market was also pointed out by Stephen Ehikien, co-founder of AI-based software developer C3.ai, who told Yahoo Finance that there are companies in the AI sector with a capitalization of half a trillion dollars and annual losses of $10 billion, while "some are trading at a price a hundred times higher than their revenues". Those valuations are "insane," the top executive noted.

This article was AI-translated and verified by a human editor