AI boom suddenly cools down—Goldman Sachs summarizes three main reasons behind it!

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U.S. technology stocks have recently experienced intense turmoil, and the AI sector's rally has come to an abrupt halt.

Peter Bartlett, a technology, media, and telecom (TMT) industry expert at Goldman Sachs, pointed out that the market is going through the toughest period since April, with the S&P 500 dropping more than 2% twice in three days, and the market trend is becoming increasingly unsettling.

Bartlett believes there are three main factors causing increased market volatility: growing skepticism about the prospects of AI, negative asymmetry in tech stock earnings season, and concerns about the deterioration of the U.S. job market. Notably, OpenAI's comments regarding federal government "guaranteeing" AI infrastructure spending have sparked significant market volatility.

Goldman Sachs believes that, given current holdings and the rapid recent rises in some sectors, the asymmetric reaction to earnings is causing investors to reassess the risk-reward ratio before the end of the year.

AI Skepticism Rises, OpenAI Fundraising Comments Spark Market Panic

Goldman Sachs TMT expert Bartlett stated in a report that more investors are expressing bearish or skeptical views on AI trades in conversations, even though holdings have not changed much from peak levels—it remains very difficult to short or underweight this strong momentum trade.

Drivers of market skepticism include: the cyclical nature of cloud computing trades, "peak" sentiment in news flow, and widespread concerns about investment returns. But recent statements from OpenAI have been particularly unsettling for the market.

Firstly, earlier this week, OpenAI CEO Sam Altman gave a defensive response to Brad Gerstner's question on the g2Pod podcast regarding “how a company with $13 billion in revenue could commit to $1.4 trillion in spending.”

Secondly, yesterday, OpenAI CFO Sarah Friar mentioned in a media interview that the federal government may ‘guarantee’ financing for AI.

Bartlett said that although Trump’s AI affairs director David Sachs responded to the "federal bailout" comments, many market participants pointed out that talking about any "bailout" at this stage of the AI cycle seems rather odd.

Negative Asymmetry in Earnings Season Highlights Risk-Reward Imbalance

Tech stocks have struggled to achieve positive returns after earnings reports.

In terms of individual stock performance, DoorDash fell 15%, HubSpot dropped 17%, PTC declined 10%. Previously, Meta fell 12%, Netflix 10%, Arista Network 9%, PLTR 7%, and MSFT continued to weaken.

Goldman Sachs’ Bartlett believes that the asymmetric reaction to earnings is prompting investors to reconsider the risk-reward ratio before year-end, especially given current holdings and how quickly some market sectors have surged in recent months. This negative deviation highlights that, at current valuation levels, the risks investors face are significantly greater than potential returns.

Deteriorating Job Market Heightens Market Concerns

According to a Wallstreetcn report, U.S. businesses announced 153,000 layoffs last month, three times the figure from the same period last year, setting a record for any October since 2003. Data from Challenger, Gray & Christmas show that AI applications, weak consumer and business spending, and rising costs are the main reasons companies have tightened spending and frozen hiring.

Bartlett concluded that how the market deals with potential unemployment from AI remains an unresolved issue, and current market trends may indicate that there is a threshold where “excessive job substitution” becomes problematic.

This means the market is beginning to weigh the balance between advances in AI technology and the job shocks it may trigger. When job losses exceed a certain critical point, even if AI brings productivity gains, it may still have a negative impact on the market.

Risk Warning and DisclaimerThe market involves risk, and investment requires caution. This article does not constitute personal investment advice, nor does it consider the special investment objectives, financial status, or needs of individual users. Users should assess whether any opinions, views, or conclusions in this article fit their specific situation. Investment based on this article is at your own risk. ```