After months of near-uninterrupted gains, AI-related stocks have hit turbulence. According to a recent note from Goldman Sachs TMT strategist Peter Bartlett, the market is showing signs of unease, with volatility rising and traders bracing for another 2% drop in just three trading days. Bartlett points to three key factors driving what he calls the "sudden AI crash."
1. Rising AI Skepticism and Talk of Bailouts
Investor conversations are increasingly skeptical about the sustainability of the AI trade. Bartlett highlights concerns about the cyclical nature of cloud spending, a perceived "peak" in AI-related news flow, and doubts about long-term returns.
Two recent comments from OpenAI executives amplified those worries:
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CEO Sam Altman defended the company’s ability to commit $1.4 trillion in spending despite generating only $13 billion in revenue.
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CFO Sarah Friar floated the idea of potential federal government support for AI funding.
Markets viewed the bailout discussion as unusual at this stage of the AI cycle. Former Trump administration AI czar David Sacks quickly countered, noting that multiple U.S. AI leaders exist and that federal bailouts are unlikely.
2. Financial Statement Asymmetry and Risk/Reward
The second factor is what Goldman Sachs calls financial statement asymmetry. Recent earnings reports have delivered uneven results, with long positions struggling to generate profits despite strong topline growth.
This mismatch has led to sharp declines in several tech names, raising questions about the risk/reward balance for investors heading into year-end. Bartlett argues that the rapid rise in valuations across certain sectors has magnified the downside when earnings fail to impress.
3. Concerns About the U.S. Job Market
Finally, Bartlett points to growing noise around the U.S. labor market. Challenger, Gray & Christmas reported 153,000 layoffs in October, triple the figure from a year earlier and the highest October total since 2003.
Drivers include:
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AI adoption, which is reshaping workforce needs.
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Weak consumer and corporate spending, pressuring margins.
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Rising costs, forcing companies to cut back.
Bartlett warns that investor focus may be shifting toward the risk of excessive job losses, raising the possibility of a tipping point in sentiment.
Market Outlook
For now, the sell-off looks more like a technical correction than a wholesale reversal. But the combination of skepticism about AI spending, uneven earnings, and labor market stress has created a fragile backdrop.
As Bartlett concludes, the market’s response to potential AI-driven job losses remains an open question. With volatility rising, traders are watching closely to see whether this pullback is a temporary pause—or the start of a deeper reset in the AI trade.