By Nick Ravenshade for NENC Media Group
October 5, 2025
Goldman Sachs CEO David Solomon issued a blunt warning this week that investor euphoria around artificial intelligence could give way to a painful pullback in equities within the next 12 to 24 months — a “drawdown” that, in his words, “people won’t feel good” about. Speaking at Italian Tech Week in Turin, Solomon framed the AI-fuelled rally as a classic technology-led cycle in which capital chases early winners and several later entrants fail to deliver, producing a reckoning that often hits retail investors hardest.
Solomon’s comments cut across a rare moment of public consensus among business leaders and investors that parts of the market look frothy. The CEO, who stressed he is “feeling pretty good” about economic fundamentals while warning of the risk, compared current conditions to prior tech cycles and said markets often “run ahead of themselves” when a transformative technology creates waves of new companies and investment. His caution landed amid record highs for major indexes this year and renewed comparisons to the dot-com era.
What Solomon actually said — and why it matters
Solomon’s remarks, reported by multiple outlets and recorded at the conference, contained three linked points: a recognition of the market’s strong performance this year, a view that AI’s investment boom has elements of excess, and a forecast that the market could see a meaningful drawdown in the next one to two years. “I wouldn’t be surprised if in the next 12 to 24 months we see a drawdown with respect to equity markets…there will be a lot of capital that’s deployed that will turn out to not deliver returns, and when that happens, people won’t feel good,” Solomon told reporters.
Why does a CEO’s opinion matter? Aside from the natural media attention a figure like Solomon draws, Goldman Sachs is a market-making powerhouse whose research and trading desks help set the tone for institutional flows. When its CEO offers a forecast about market structure — even framed as a possibility rather than a prediction — it reinforces risk awareness across clients and counterparties. Solomon’s stature amplifies the signal: the market treats such warnings not only as opinion but as an implicit flag to reassess positioning and liquidity plans.
The context: AI, valuations, and the memory of the dot-com cycle
Solomon placed his comments squarely in the context of the AI investment cycle. He argued that major shifts in technology naturally spur enormous capital formation — new companies, huge infrastructure projects like data centers, and rapid hiring — and that inevitably some portion of that capital will underperform. That dynamic, he suggested, is what could produce a drawdown: not necessarily an economy-wide collapse, but a market correction concentrated among overvalued names and speculative bets tied to AI narratives.
Other industry figures at Italian Tech Week echoed variants of this concern. Amazon founder Jeff Bezos used the conference to call aspects of the AI boom an “industrial bubble,” and analysts have pointed to multiples on a handful of AI-linked stocks that look stretched against even optimistic growth scenarios. Still, defenders of the rally argue this time is different: revenue is already flowing from AI workloads, chipmakers are selling into a tangible hardware cycle, and corporate customers are paying for AI services — contrasts that supporters say separate the current boom from the dot-com years. Solomon’s comment deliberately straddled those views: he stopped short of labeling the market a bubble but signaled that the risk of disappointment is real.
The investor checklist: what to watch next
If Solomon is right — or even partly right — three market signals will matter most for investors and advisors:
- Breadth of weakness. A true drawdown will show itself first in breadth: if large portions of the market, beyond a few headline tech names, begin to decline, it points to systemic re-rating. If weakness is concentrated in narrowly defined AI plays, the blow may be painful for speculators but contained for diversified portfolios. Monitor advance/decline lines, sector leadership, and flows into ETFs versus active funds.
- Earnings and margins. The ultimate arbiter of stock performance is earnings. Watch whether AI investments translate into margin expansion and sustainable cash flows for mid-to-large cap firms, and whether smaller entrants can justify valuations with revenue growth. A failure to convert hype into profit will accelerate any drawdown.
- Risk premia and liquidity. Rising volatility, widening credit spreads, or sudden drops in market liquidity often presage sharper corrections. Institutional players adjust position sizes and hedges quickly; retail investors typically do not. Solomon’s warning matters because it may prompt institutions to subtly de-risk, which in itself can shorten the runway for a continued rally.
Beyond markets: the business angle for Goldman
Solomon’s balanced tone — optimistic on the economy but cautious on valuations — also reflects Goldman’s commercial interests. The bank benefits from robust dealmaking and trading volumes when markets are buoyant; it also profits from advisory fees during corrections as companies reshuffle capital, execute restructurings, or raise liquidity. Solomon has, in public appearances this year, repeatedly emphasized a multi-scenario approach: prepare for continued growth while keeping clients and the firm hedged for volatility. For Goldman's clients, that translates into a menu of products: risk-management, structured solutions, and, where appropriate, capital raises and M&A advisory.
There’s also an internal governance angle. A CEO warning of possible market pain can be a signal to employees and risk teams to tighten discipline — not a public berating, but a nudge to align compensation and behavior toward downside protection. For an institution that weathered past crises but still carries reputational and regulatory sensitivities, that corporate posture matters to clients and supervisors alike.
How investors should think about Solomon’s forecast (analysis)
A market veteran’s caution is not a timing call. Solomon framed the drawdown as a plausible outcome over 12–24 months, not an imminent collapse. That distinction matters: the interval gives investors time to adjust rather than panic. For most long-term investors, the algorithm for action remains the same — diversify, keep an emergency cash buffer, and avoid concentrated speculative bets that presume continuing multiple expansion. For traders and allocators, the message is more tactical: scale hedges, keep liquidity dry powder, and ask critical questions about valuation versus business model sustainability.
History offers a useful takeaway. The dot-com bust punished companies without sustainable economics. The winners were the firms that combined durable revenue models with capital discipline. If the next drawdown follows that pattern, investors who prize cash flow and governance will likely weather the storm better than those chasing the latest theme. Solomon’s statement is a reminder — from inside the financial system — to treat the current cycle with both respect and skepticism.
— Reporting by Nick Ravenshade. Sources: Bloomberg; Wall Street Journal; CNBC coverage of Italian Tech Week; Business Insider; Quartz; Axios; Reuters coverage and conference reporting.
Photo: Maryland GovPics, CC BY 2.0, via Wikimedia Commons
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