Jim Covello, the head of global equity research at Goldman Sachs, has recently poured cold water on the artificial intelligence (AI) concept, which has been the main driver of the rise in US stocks this year.

With more than three decades of experience on Wall Street, Covello knows well how painful it is to short against the expanding tech stock bubble. The market always finds a way to create wealth month after month, even if the progress of the latest technological breakthroughs is clearly below expectations. Covello believes that a similar situation could occur in the AI field. Therefore, it is dangerous and even foolish to start shorting companies like Nvidia.

Covello believes that it may not be this year or even next year, but one day, the bubble's burst will come. In his view, the hundreds of billions of dollars that enterprises have spent in the AI field will not trigger the next economic revolution and are not even as beneficial as those of smartphones and the Internet. When this becomes clear, all stocks that have risen sharply due to the AI prospects will also fall.

Covello believes that in order to justify its high costs, AI "must be able to solve complex problems, but this is not its original design intention". AI technology is very expensive, and even using machine learning to replace humans cannot reduce costs.

Covello's report states: "We found that AI updates the historical data in our company's model faster than (manual) updates by humans, but the cost is six times that of manual updates." He also said that costs must drop significantly in order for the public to afford AI's automated execution of tasks.

AI enthusiasts believe that AI technology is still in its infancy, just like the Internet during the Internet bubble in the 1990s, and the cost of AI will eventually decrease. But even so, Covello points out that the Internet still has a cost advantage. "Amazon can sell books at a lower cost than Barnes & Noble because it doesn't have to maintain a high-cost physical store."

Covello said, "The idea that technology is usually expensive at first and then becomes cheaper is a revision of history."

Covello's concerns are not just about high costs. He simply predicts that AI will not become the breakthrough technological invention that people expect. So far, AI does not have a "killer application", and even his more optimistic colleagues at Goldman Sachs have admitted this in the report.

The media said that since the end of 2022, the upsurge of the AI concept has driven the market value of the S&P 500 index to surge by nearly $16 trillion. Now, a small group of market observers led by Covello have raised questions about the key principle of the AI concept. This principle is that the powerful force of large language models (LLM) will usher in the next great stage of capitalism. As more and more work is handed over to intelligent machines, corporate profits will thrive, thereby improving efficiency and accelerating growth.

The few but growing number of skeptics like Covello believe that the problem is that people's commercial expectations for AI technology may be greatly exaggerated. If tech giants reconsider their huge investments in the AI field, the stock market may experience a correction.