Goldman Sachs' top stock analyst: AI will not trigger an economic revolution, bubbles will always burst

Goldman Sachs' global stock research director Jim Covello recently poured cold water on the main driver of this year's US stock market rally - the artificial intelligence (AI) concept.

With over thirty years of experience on Wall Street, Covello knows well that shorting against the constantly expanding tech stock bubble can be very painful. The market always finds ways to continue creating wealth month after month, even when the latest technological breakthroughs clearly fall short of expectations. Covello believes that the AI field may also experience this situation, so it is very dangerous to start shorting companies like NVIDIA, even foolish.

Covello believes that maybe not this year, or even next year, but someday the AI bubble will burst. In his view, companies pouring billions of dollars into the AI field will not spark the next economic revolution, not even close to the benefits of smartphones and the internet. When this becomes clear, all stocks that have surged due to AI prospects will also decline.

In his report, Covello pointed out:

"Historically, most technological transformations, especially those with transformative significance, have replaced very expensive solutions with very cheap solutions. And replacing low-wage jobs with extremely expensive technology is basically going in the opposite direction."

"What trillion-dollar value problems will AI solve? Replacing low-wage jobs with high-cost technology is completely contrary to the previous technological transformations I have witnessed closely in the tech industry over the past thirty years."

Covello believes that in order to justify its high cost, AI "must be able to solve complex problems, which is not its original design intention." AI technology is very expensive, and even using machine learning to replace humans cannot reduce costs.

Covello's report states, "We found that updating historical data in our company's models with AI is six times more expensive than manual updates." He also said that costs must be significantly reduced for the general public to afford AI automation tasks.

Supporters of AI believe that AI technology is still in its early stages, just like the internet during the dot-com bubble of the 1990s, and AI costs will eventually decrease. However, even so, Covello points out that the internet still has a cost advantage. "Amazon can sell books at a lower cost than Barnes & Noble because it does not have to maintain high-cost physical stores."

Covello said, "Technology is usually expensive at first, and then it becomes cheaper, this idea is a correction of history."

Covello's concern is not only about high costs. He simply predicts that AI will not be the breakthrough technology invention people expect. So far, AI has not had a "killer application," even his more optimistic colleagues at Goldman Sachs have acknowledged this in their reports.

Media reports that since the end of 2022, the AI concept frenzy has driven the market value of the S&P 500 index to increase by nearly $16 trillion. Now, a small group of market observers led by Covello are questioning the key principle of the AI concept. This principle is that the powerful force of Large Language Models (LLMs) will usher in the next great stage of capitalism, as more and more work is handed over to intelligent machines, business profits will flourish, thereby improving efficiency and accelerating growth Covello and a few but growing number of skeptics believe that the problem lies in the fact that people's commercial expectations for AI technology may be greatly exaggerated. If tech giants reconsider their massive investments in the field of AI, the stock market may experience a pullback