Jim Covello, the head of stock research at Goldman Sachs, has raised alarms that the artificial intelligence sector may be heading for a significant correction, reminiscent of the dot-com crash he witnessed early in his career. In a June research report that has since circulated widely, Covello argued that the enormous sums flowing into AI companies may not generate adequate returns, and that current AI tools are not yet capable of delivering the productivity gains that would justify their costs.
"Despite its expensive price tag, the technology is nowhere near where it needs to be in order to be useful," Covello wrote, adding that "overbuilding things the world doesn't have use for, or is not ready for, typically ends badly." His comments, reported by The New York Times, have added a prominent Wall Street voice to a growing chorus of skeptics.
Covello's perspective is shaped by his experience at Goldman Sachs during the late-1990s tech bubble, when thousands of employees lost their jobs as the market collapsed. He now predicts that companies will eventually curb their AI spending once they realize that these costly tools are eroding their profit margins. He has not ruled out a dot-com-style crash.
"When you have a view that's sort of out on a limb, you live in this kind of constant state of paranoia that AI is going to be as big as everybody thinks it is," Covello told the NYT. "So I am genuinely on the lookout every single day for my blind spots. Where could I be wrong?"
Growing Unease Among Investors
Covello is not alone in his caution. Days before his report, Sequoia Capital partner David Cahn published a blog post arguing that the tech industry would need to generate $600 billion annually to justify its AI investments. While Cahn acknowledged that "speculative frenzies are part of technology," he stressed that AI is not a "get rich quick" scheme.
Other prominent figures have drawn direct comparisons to the dot-com era. Jeffrey Gundlach, CEO of DoubleLine Capital, said during a March broadcast on X Spaces, "This feels a lot like 1999."
The warnings come as major tech companies pour billions into expanding AI infrastructure, with returns that may be years away. Jim Morrow, CEO of Callodine Group and a Goldman client, noted that Covello's stance prompted important conversations. "Having someone from a firm like Goldman ring the bell and say, 'Hey, it won't become a reality the way everyone thinks' had people asking important questions about what was actually happening," Morrow told the NYT.
The debate over AI's economic viability is far from settled, but the concerns raised by Covello and others have injected a note of caution into an otherwise exuberant market.
