Goldman Sachs is sounding a cautious note on the AI trade that has powered the US stock market. While staying bullish long-term, the bank warns that the rally's narrow foundation creates significant risk.
The core issue is concentration. Nvidia has been the single largest driver of index gains, alongside Microsoft, Alphabet, Meta, and Broadcom. Goldman's concern focuses on lower-quality AI stocks that lack the earnings power of these mega-caps-names most vulnerable to a sudden momentum reversal.
Recent history validates this worry. Equity hedge funds suffered their worst performance stretch in nearly a year during an AI-led selloff, with some down 3%, driven by forced liquidations from crowded positions.
Goldman's machine-learning hedging strategies advise maintaining core AI exposure while buying downside protection via options or relative value trades. This approach is now resonating beyond equities: crypto traders are adopting similar tactics to hedge positions against AI equity momentum shifts.