Artificial intelligence has been the driving force behind Wall Street’s historic rally, pushing stock markets to fresh record highs. But according to Goldman Sachs, the boom may not be sustainable forever. In a new research note, the investment bank warned that a slowdown in corporate AI spending could knock 15–20% off the S&P 500’s valuation multiple, triggering a major market correction.
The S&P 500 recently climbed to a new record high of 6,502.08, posting a 0.83% gain in a single session. While investors cheered the milestone, Goldman Sachs analysts struck a more cautious tone. Led by Ryan Hammond, the team cautioned that the real risk isn’t today’s lofty stock prices—it’s what happens when tech giants inevitably reduce their massive AI-related investments.
The AI Boom That Fueled Wall Street’s Rally
Since late 2022, artificial intelligence has transformed from a niche technology into the biggest growth engine on Wall Street. Companies like Nvidia, Microsoft, Amazon, Alphabet (Google’s parent), and Meta have poured billions into building AI infrastructure—from GPUs and data centers to advanced software.
This frenzy of investment has fueled:
- Explosive growth in semiconductor demand, especially for Nvidia’s GPUs.
- Soaring valuations of hyperscaler cloud companies.
- Optimism across enterprise software and automation industries.
In fact, Goldman Sachs estimates that hyperscaler companies have already spent $368 billion on capital expenditures in 2025 alone, most of it directed toward AI infrastructure.
This torrent of investment has driven real revenue, unlike the dot-com bubble of the early 2000s, when companies burned cash without profits. AI isn’t just hype—it’s already reshaping business models, productivity, and corporate earnings.
The Risk: An “Inevitable” AI Spending Slowdown
Goldman’s latest report highlights one uncomfortable truth: this pace of AI spending can’t last forever. At some point, tech giants will hit diminishing returns on new data centers, GPUs, and AI infrastructure.
To illustrate the risk, Goldman modeled an extreme scenario:
- If Amazon, Microsoft, Alphabet, Meta, and Oracle cut capital expenditures back to 2022 levels, total S&P 500 sales growth estimates would plunge by 30%.
- That slowdown would reduce the index’s valuation multiple by 15–20%, erasing much of the recent AI-fueled market rally.
In plain terms, Wall Street’s optimism is heavily dependent on continued AI investment. Once spending growth cools, valuations could reset sharply lower.
Are We in an AI Bubble? Goldman Says No
Despite the warning, Goldman Sachs does not believe we’re in “bubble territory” yet. Here’s why:
- Valuations are elevated but not extreme
- The five largest stocks in the S&P 500—Nvidia, Microsoft, Apple, Alphabet, and Amazon—currently trade at a 28x price-to-earnings multiple.
- During the 2021 peak, this multiple hit 40x.
- During the dot-com bubble in 2000, it soared to 50x.
- AI investments are generating real revenue
- Unlike dot-com firms that sold visions of the future, today’s AI leaders are already delivering profits.
- Nvidia, for example, has reported record-breaking earnings quarter after quarter, driven by demand for its GPUs.
- Investor expectations are more grounded
- Wall Street isn’t pricing in infinite growth. Instead, analysts acknowledge that AI adoption will take time, especially in “Phase 3” sectors like enterprise software.
When Will the AI Slowdown Hit?
The timing of a slowdown remains uncertain. Goldman Sachs notes that analysts are currently forecasting a sharp deceleration in AI spending in late 2025 and into 2026.
However, hyperscalers keep pushing those expectations further out:
- Every earnings season, Amazon, Microsoft, and Google announce higher AI spending guidance, extending the boom cycle.
- For now, capital expenditures are accelerating rather than slowing.
This creates a paradox: investors know AI spending growth can’t last forever, but as long as companies keep raising guidance, the rally continues.
Winners and Losers in the AI Boom
The AI investment surge has created clear winners and laggards across industries:
Direct Winners
- Nvidia – Dominates GPU supply, capturing the lion’s share of hyperscaler spending.
- Cloud providers (AWS, Azure, Google Cloud) – Expanding infrastructure to support AI workloads.
- Semiconductor firms – From memory producers to networking chip makers, all benefit from higher AI demand.
Indirect Winners (Still Waiting)
- Enterprise software companies – Many promised AI-driven productivity boosts, but so far earnings impact has been limited.
- Manufacturers and industrials – Expected to adopt AI for automation, but adoption is slower than anticipated.
Potential Losers
- If AI spending slows sharply, companies that rely heavily on hyperscaler demand may face revenue headwinds.
- Smaller software firms that haven’t monetized AI effectively could see valuations compressed.
A Reality Check for Investors
Goldman Sachs’ warning is less about predicting an imminent crash and more about providing a reality check for investors swept up in AI euphoria. Key takeaways include:
- Valuations could fall even without a recession
- If AI spending growth cools, multiples could compress by 15–20%.
- That doesn’t mean earnings will collapse—it means stock prices could re-rate lower.
- AI is a long-term growth story, but adoption will be uneven
- Phase 1 (infrastructure buildout) is booming.
- Phase 2 (applications like copilots, search, and generative AI) is gaining traction.
- Phase 3 (enterprise-wide adoption) may take longer than investors expect.
- Diversification is critical
- Concentrated bets on hyperscaler demand may carry higher risk.
- Investors should consider exposure across broader sectors that will eventually benefit from AI productivity gains.
Global Markets Still Riding the Wave
Despite Goldman’s caution, markets remain broadly optimistic. On the same day the S&P 500 hit a record:
- Japan’s Nikkei 225 gained 1.03%.
- China’s CSI 300 rose 2.18%.
- Even Bitcoin rallied, climbing past $112,700.
Clearly, risk appetite remains high, fueled by liquidity and optimism about AI’s transformative potential.
The Bottom Line: Prepare for the Plateau
The message from Goldman Sachs is simple: enjoy the AI boom, but don’t assume it will accelerate forever. The laws of economics and capital discipline mean growth will eventually plateau.
For investors, this means:
- Stay cautious about paying extreme multiples for AI-driven stocks.
- Focus on companies with proven revenue models rather than speculative promises.
- Be ready for volatility when spending growth inevitably slows.
The AI revolution is real, but no growth story lasts indefinitely. When hyperscaler spending finally cools, the S&P 500’s valuation could fall by as much as 20%—a sobering reminder that even the most exciting trends eventually face gravity.