A top analyst at Goldman Sachs has emerged as one of Wall Street’s most vocal skeptics of the artificial intelligence (AI) boom, warning that the industry’s massive investments may not deliver the returns that many expect. Jim Covello, the head of stock research at Goldman Sachs, has questioned whether businesses will see substantial benefits from what some analysts predict will be US$1 trillion in AI spending in the coming years.
Covello’s skepticism stems from his experience observing past tech bubbles and busts, including the dot-com collapse in the early 2000s. On a recent drive from San Jose to San Francisco, he noticed nearly 40 billboards promoting various AI products, a sight that reminded him of the cryptocurrency hype that had previously dominated the same advertising space. “Not that long ago, they were all crypto,” he remarked. “And now they’re all AI.”
In a research paper published three months ago, Covello highlighted the potential risks of generative AI technology, which is often touted for its ability to write software code and summarize text. He noted that the technology still makes too many errors and questioned whether it would ever reliably solve complex real-world problems. The report jolted markets and led to a reassessment of AI stocks.
Goldman’s basket of AI-related stocks, which includes major companies such as Nvidia, Microsoft, Apple, and Alphabet, has declined 7% since reaching its peak on July 10. This drop reflects growing concerns among investors about whether AI will live up to its promise, despite the excitement that has fueled a surge in AI-related investments over the past two years.
While the AI industry is still in its early stages, Covello is cautious. He has reviewed AI services for Goldman Sachs, finding them costly and cumbersome. “The services I’ve looked at aren’t smart enough to make employees smarter,” he said.
However, not everyone shares Covello’s pessimism. George Lee, co-head of Goldman’s geopolitical advisory business, believes that AI will eventually yield significant productivity gains. In a private email to Covello, Lee argued that AI’s long-term impact would become evident over time as the technology becomes more refined and affordable. He explained, “The long-term impact of platform shifts is that applications emerge over time as that technology is refined, made more readily available, made cheaper.”
Goldman clients have shown interest in this debate, prompting the firm to host private discussions between Covello and Lee, who represent the bearish and bullish perspectives on AI, respectively. Jim Morrow, CEO of Callodine Group, a Boston-based Goldman client, described the debate as necessary. “AI had captured the market zeitgeist,” Morrow said. “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.”
Covello’s concerns about AI’s future aren’t limited to costs. He also warns of a potential AI bubble, drawing parallels to the tech booms of the past. His warnings have resonated within Goldman Sachs, where his views were featured in a 31-page research report titled “Gen AI: Too Much Spend, Too Little Benefit?”
During a recent Goldman tech conference in San Francisco, Covello and Lee debated their opposing views in front of hundreds of attendees. Covello pointed to examples like a pharmaceutical company that canceled its AI services with Microsoft, finding the technology no more useful than a “middle-school presentation.” Lee, on the other hand, cited a study from Princeton University that showed a 20% productivity increase among 5,000 developers using AI tools.
While the debate rages on, it raises a critical question about the future of AI: can the industry truly deliver on its promise, or will it become another overhyped tech revolution? Only time will tell.
