The market is still in a state of "crazy surge"; Goldman Sachs partners: the trend "has a hint of the 2000 bubble."

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The strong rally in tech stocks and the semiconductor sector is pushing the market into an irrational exuberance zone, with Goldman Sachs internally issuing a bubble warning.

Rich Privorotsky, a partner in Goldman Sachs’ Sales and Trading division, warned in his latest client report that the current trajectory of US equities “feels a bit like 2000,” and the market is in a state of “upward buying frenzy.” He noted that call option skew has risen almost vertically, CTA (Commodity Trading Advisor) strategies are now fully long, and market sentiment is extremely euphoric. Meanwhile, unresolved tensions with Iran and resurging global inflationary pressures have made the market’s potential risks impossible to ignore.

Although Privorotsky acknowledges that “shorting during a bubble is futile” and advises investors to go along with the upward trend, he also cautions that signs of cracks are appearing on the consumer side and market breadth is slipping back toward recent lows. The vertical surge in the semiconductor and memory chip sectors, along with the highly concentrated AI computing power narrative, are the core sources of the market's current fragility.

Semiconductors Lead the Rally as Market Chase Reaches Extremes

The primary driving force in the current US stock market has shifted from macro narratives to a one-sided squeeze in tech and semiconductor sectors. SK Hynix rose another 12% in a single day, and the continued climb in memory chip prices has become the market’s most closely watched variable, even surpassing the importance of oil price fluctuations.

Privorotsky pointed out that the market is currently caught in a triple resonance of “spot rising, volatility rising, and buying call options,” with tech, semiconductor, and memory stocks dominating nearly all the gains. Call option skew is skyrocketing, CTA strategies are now fully net long, and while volatility control strategies still offer mechanical support, their marginal buying power is now quite limited given the recent sustained rise in volatility.

He admitted, “Trying to predict the top is a fool’s errand,” and believes that during the bubble formation stage, the correct strategy may be to “embrace going long.” However, as a contrarian investor, he cannot avoid questioning the potential risks.

Concerns Linger over AI Compute Narrative as Distributed Computing May Erode Demand

Privorotsky recognizes the long-term logic for AI-driven semiconductor demand, but questions the ultimate form of compute deployment and marginal compute costs on a structural level.

He believes open-source models have already captured significant share in basic programming and similar scenarios, and cost-sensitive users are noticeably shifting toward lower cost inference solutions. Smaller models are now able to run smoothly on local CPUs for low-value-density tasks—he cites his own 2023 MacBook Pro as proof that edge computing power can already handle some model deployments.

Therefore, the core debate for the semiconductor industry is not whether compute demand can continue to grow, but “whether there is enough demand shifting to cheaper distributed computing that supply can catch up with demand.” If compute compression technology continues to advance, the demand concentration for leading-edge models could be significantly diluted, challenging the current valuation logic.

Market Breadth Narrows as Cracks Appear on the Consumer Side

Although headline indexes are making a lot of noise, Privorotsky points out that the market’s internal structure is quietly deteriorating. Signs of weakness are appearing on the consumer side, market breadth has basically fallen back to recent lows, indicating that this round of gains is being supported by only a handful of leading tech and semiconductor stocks.

The market is now in a structurally high volatility environment, and “holding gamma will continue to pay off.” After a nearly vertical short squeeze in semiconductors and South Korean stocks, pressure signals have started to appear, and “the underlying position structure beneath the rebound is becoming increasingly unstable.”

For investors, this means the current risk-reward structure in the market has become increasingly asymmetric—chasing the rally is getting more costly, while potential downside triggers—be they from energy markets, inflation data, or geopolitical risks—have yet to recede.

Risk Disclosure and DisclaimerThe market has risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situation. Investing based on this is at your own risk. ```