A Goldman Sachs model on February 28 showed that the probability of a market correction in the US stock market is increasing significantly before mid-2025. This assessment marks a shift from the bank’s previous outlook, reinforcing concerns among cautious investors who warn of a potential market downturn or correction in the near future.
Warnings about a potential correction or market pullback in the US are not new. They began alongside the rise of artificial intelligence (AI) stocks, particularly as inexperienced investors entered the market in large numbers. With the SP 500 surpassing 6,000 points for the first time, concerns have grown about an overheated market.
The First Variable
The most important US stock index has soared over 100% in the past five years. This surge can be attributed to several factors—beyond the AI revolution—including the strength of the US dollar, the influx of substantial foreign capital into the market, the continued bullish sentiment among the majority of investors, and the solid performance of the US economy, which recorded a growth rate of 2.9% in 2023 and 2.8% in 2024.
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All these factors, along with generally positive reports on employment and consumer intentions, have driven the market to explode in recent times. But can we say that this trend will continue? What has changed—or could change—that might alter the situation?
Perhaps the first and most important variable to watch is the future of AI investments. The market anticipated growth in this sector due to significant investments, leading to a surge in related stocks. However, the largest stock drop in history occurred on January 27, 2025, when Nvidia lost nearly 17% of its value, wiping out almost $600 billion from its market capitalization in a single day. This was a clear sign that the rally, despite its strength, was “fragile.”
The decline was triggered by the emergence of a Chinese AI model that is more cost-effective than its American counterparts and does not rely on the same high-powered processors used by models like ChatGPT. This development signals a potential major drop in Nvidia’s sales in the coming period and raises doubts about its market valuation.
What iI Fears Are Confirmed?
Despite the fact that shares of tech giant Nvidia recovered some of their losses after a continuous decline for several days following January 27, they still dropped by 18% overall from that day until early March 2025—just over a month.
What helped prevent a “free fall” for the stock was US campaigns supporting the $500 billion investment initiative announced by the US administration to secure AI leadership. This move was driven by American concerns over strong Chinese competition, which eased fears and provided support for the sector. Additionally, there were other campaigns questioning the accuracy of Chinese data regarding AI model costs, claiming they were misleading.
Although the SP 500 index rose by more than 1% in the first two months of 2025, the tech-heavy Nasdaq declined by 2.25% over the same period—an unprecedented drop in the past decade. This suggests a certain degree of “relative pessimism” about the leading tech stocks that have been driving U.S. market growth over the last five years.
But the key question remains: what if it turns out that Chinese AI models are indeed significantly cheaper than their American counterparts? This will likely become evident with the emergence of more open-source AI models, leading to a continuous decline in the value of AI-related stocks—including the so-called “Magnificent Seven”: Nvidia, Microsoft, Meta, Amazon, Alphabet, Tesla, and Apple.
The possible exception could be Apple, which has not made massive investments in AI and might actually benefit from cheaper models to enhance its products. However, in general, the recent decline in tech stocks would then be seen as merely a “wait-and-see” phase rather than a definitive downturn. Predicting the full extent of pessimism replacing the previous optimism about AI companies remains difficult.
If such a decline occurs, it won’t be limited to these companies alone—it will likely trigger a broader market correction in many sectors that have grown in recent years due to their direct or indirect ties to AI. This includes industries like telecommunications, energy, and mining, as part of their valuations are based on the potential expansion of their businesses in response to the AI revolution.
AI Is Not the Only Factor
Beyond AI, another major concern is the ongoing economic tensions fueled by persistent US threats to impose tariffs on both allies and rivals. The primary targets include China, the European Union, Canada, and Mexico—America’s largest trading partners. If trade wars break out—regardless of their scale—they could jeopardize a portion of America’s export gains, which reached $3.2 trillion in 2024.
A Goldman Sachs model on February 28 showed that the probability of a market correction in the US stock market is increasing significantly before mid-2025. This assessment marks a shift from the bank’s previous outlook, reinforcing concerns among cautious investors who warn of a potential market downturn or correction in the near future.
Warnings about a potential correction or market pullback in the US are not new. They began alongside the rise of artificial intelligence (AI) stocks, particularly as inexperienced investors entered the market in large numbers. With the SP 500 surpassing 6,000 points for the first time, concerns have grown about an overheated market.
The First Variable
The most important US stock index has soared over 100% in the past five years. This surge can be attributed to several factors—beyond the AI revolution—including the strength of the US dollar, the influx of substantial foreign capital into the market, the continued bullish sentiment among the majority of investors, and the solid performance of the US economy, which recorded a growth rate of 2.9% in 2023 and 2.8% in 2024.
For more topics and reports, visit the Argaam Selections page.
All these factors, along with generally positive reports on employment and consumer intentions, have driven the market to explode in recent times. But can we say that this trend will continue? What has changed—or could change—that might alter the situation?
Perhaps the first and most important variable to watch is the future of AI investments. The market anticipated growth in this sector due to significant investments, leading to a surge in related stocks. However, the largest stock drop in history occurred on January 27, 2025, when Nvidia lost nearly 17% of its value, wiping out almost $600 billion from its market capitalization in a single day. This was a clear sign that the rally, despite its strength, was “fragile.”
The decline was triggered by the emergence of a Chinese AI model that is more cost-effective than its American counterparts and does not rely on the same high-powered processors used by models like ChatGPT. This development signals a potential major drop in Nvidia’s sales in the coming period and raises doubts about its market valuation.
What iI Fears Are Confirmed?
Despite the fact that shares of tech giant Nvidia recovered some of their losses after a continuous decline for several days following January 27, they still dropped by 18% overall from that day until early March 2025—just over a month.
What helped prevent a “free fall” for the stock was US campaigns supporting the $500 billion investment initiative announced by the US administration to secure AI leadership. This move was driven by American concerns over strong Chinese competition, which eased fears and provided support for the sector. Additionally, there were other campaigns questioning the accuracy of Chinese data regarding AI model costs, claiming they were misleading.
Although the SP 500 index rose by more than 1% in the first two months of 2025, the tech-heavy Nasdaq declined by 2.25% over the same period—an unprecedented drop in the past decade. This suggests a certain degree of “relative pessimism” about the leading tech stocks that have been driving U.S. market growth over the last five years.
But the key question remains: what if it turns out that Chinese AI models are indeed significantly cheaper than their American counterparts? This will likely become evident with the emergence of more open-source AI models, leading to a continuous decline in the value of AI-related stocks—including the so-called “Magnificent Seven”: Nvidia, Microsoft, Meta, Amazon, Alphabet, Tesla, and Apple.
The possible exception could be Apple, which has not made massive investments in AI and might actually benefit from cheaper models to enhance its products. However, in general, the recent decline in tech stocks would then be seen as merely a “wait-and-see” phase rather than a definitive downturn. Predicting the full extent of pessimism replacing the previous optimism about AI companies remains difficult.
If such a decline occurs, it won’t be limited to these companies alone—it will likely trigger a broader market correction in many sectors that have grown in recent years due to their direct or indirect ties to AI. This includes industries like telecommunications, energy, and mining, as part of their valuations are based on the potential expansion of their businesses in response to the AI revolution.
AI Is Not the Only Factor
Beyond AI, another major concern is the ongoing economic tensions fueled by persistent US threats to impose tariffs on both allies and rivals. The primary targets include China, the European Union, Canada, and Mexico—America’s largest trading partners. If trade wars break out—regardless of their scale—they could jeopardize a portion of America’s export gains, which reached $3.2 trillion in 2024.
