Andrew Kelly/Reuters
- A Goldman Sachs trader, Mike Washington, broke down why he doesn't think AI stocks are a bubble.
- He said the valuations of AI stocks are based on strong fundamentals, unlike during the dot-com bubble.
- Washington also pointed to a steady flow of funds and an increasingly resilient consumer.
A Goldman Sachs trader has said he hears the word "bubble" now more than any other time in his career, asAI stocksdrive huge gains. But he laid out three reasons he thinks this isn't one.
According toMorgan Stanleyand JPMorgan, AI-related companies have contributed to 80% of the gains in the S&P 500 this year, bringing the stock index's total gains up nearly 13% since the start of 2025.
Nvidia, which became the first public firm to reach a market capitalization of $4 trillion in July, has surged 35% since the start of the year, with rivals Microsoft and Google's parent company, Alphabet, having jumped about 21% and 32%, respectively.
Mike Washington, an equities sales trader with Goldman's global banking and markets division, told the investment bank's "The Markets" podcast in an episode released Friday that he was hearing the word "bubble" more than at any other point in his 11-year career.
"Do I feel that there's froth in our system right now? Do I feel that a 5 to 8% pullback, something like that, probably makes sense at least in the interim? Do I feel that we're in a bubble with, you know, 30 to 40% market drawdown-type of moves?" Washington asked when host Chris Hussey raised the issue of whether we are in a bubble.
"I don't, and I think that for three reasons," Washington continued.
1. Valuation
It's easy to think that when a market rises, it's because stocks are being valued at irrational levels, but Washington said that's not what's happening.
"The biggest companies on the planet are growing at real numbers and contributing back to some of this price appreciation that we've seen," he said.
Washington cited Goldman research that said the two-year forwardP/E ratioof the top seven stocks in the S&P 500 is 27. During the dot-com bubble, it was 52, he said.
2. A steady flow of funds
Washington said that Goldman Sachs expects households to buy about $520 billion in US stocks in 2026, up 19% from the previous year.
He added that in addition to domestic spending, there has been a "staggering amount" of foreign investment inUS markets in 2025 because of the dollar's depreciation and exposure to AI stocks.
3. The resilient consumer
"The consumer is truly resilient right now," Washington said.
He said this was the No. 1 takeaway from a retail conference the investment bank hosted six weeks ago.
"Our market's elevated," Washington said. "Do I feel like we're at the precipice of a bubble collapse? I don't."
