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When AI's 'inevitable slowdown' comes it could tank the S&P 500 by up to 20%, Goldman Sachs says

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  Published in Stocks and Investing on Friday, September 5th 2025 at 9:00 GMT by Fortune
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AI’s Momentum Meets a Market Slow‑Down: What Goldman Sachs Says About the S&P 500’s Future

In a September 5, 2025 feature for Fortune, analysts at Goldman Sachs outlined a sobering outlook for the U.S. equity market: despite the relentless march of artificial intelligence (AI) across business and consumer sectors, the S&P 500 is likely to experience a “mild but meaningful” deceleration in earnings growth and overall valuation. The piece weaves together macro‑economic data, recent AI investment trends, and the bank’s own earnings‑projection models to paint a picture of a technology‑rich but growth‑restricted near‑term future.

1. AI: Still a Growth Engine, but Not a Panacea

The article opens by affirming the central theme of the current decade—AI is not a buzzword but a “technological inevitability.” Goldman’s research team notes that AI’s share of U.S. economic output is projected to jump from roughly 4 % in 2023 to about 7–8 % by 2030. The sector continues to attract capital: Nvidia alone raised more than $30 billion in capital markets in 2024, while Alphabet, Microsoft, and Amazon each added hundreds of billions in AI‑related R&D and cloud capacity.

However, the piece cautions that AI’s growth trajectory is not immune to broader economic forces. “Productivity gains from AI are often offset by the very costs that drive them—power consumption, silicon scarcity, and the high cost of talent,” the analysts write. They point to the recent slowdown in global semiconductor supply, which has tightened the output of the very chips that power AI workloads. A tighter supply curve has already nudged the price of GPUs higher, squeezing the margins of AI‑dependent firms like Nvidia and AMD.

2. Inflation, Interest Rates, and the Policy Cross‑Road

Goldman’s forecast is heavily weighted by expectations for U.S. inflation and the Federal Reserve’s stance. In the past year, the Fed has cut rates from 5.25 % in 2023 to 4.5 % in early 2025. But the team warns that “increased inflationary pressures—especially in the energy and food sectors—could prompt a second rate hike by the Fed later this year.” The model incorporates a scenario in which the Fed raises rates to 5.0 %, causing a 1–1.5 % contraction in the S&P 500’s earnings growth over the next 12 months.

The article cites recent data from the Bureau of Labor Statistics, which showed core inflation creeping back above 2 % in August 2025. With the Fed’s focus on “taming” inflation rather than “fueling” growth, the analysts predict a modest but prolonged period of reduced earnings expansion for the index.

3. S&P 500 Outlook: A “Mild but Meaningful” Deceleration

Goldman’s flagship equity model projects the S&P 500 will return a 9.8 % total return this year—down from 13.5 % in 2024—but still outpacing a 7.3 % return in a comparable inflation‑adjusted scenario. The key driver of the slowdown is expected earnings growth: “We forecast earnings to rise at 6.5 % this year versus 9.2 % in 2024,” the piece states. That drop is not due to a decline in AI activity per se, but to the slower economic backdrop and higher cost of capital.

A few notable sectoral take‑aways emerge:

The model also highlights that while the technology sector is still projected to outperform, its growth rates will contract from the near‑record 13 % rise in 2024 to a more modest 10 % in 2025.

4. The Role of AI‑Related Companies in the Index

The Fortune article pays special attention to the “AI champions” that dominate the index’s top‑performers: Nvidia, Alphabet, Microsoft, and Amazon. Goldman’s analysts estimate that these four firms alone could account for up to 18 % of the S&P 500’s total return this year—an increase from 15 % last year. Yet even these “AI powerhouses” are not immune to the macro‑environment. For instance, Nvidia’s revenue growth, projected at 32 % this year, is likely to be throttled by supply constraints and higher raw‑material costs.

The analysts caution that “investors should monitor the supply‑chain risk metrics of AI‑heavy firms.” The article links to a Fortune piece on semiconductor shortages that delves into the supply chain complexities that could push forward the next “AI slowdown.”

5. Regulatory Headwinds and Ethical Concerns

Another dimension of the slowdown stems from increasing regulatory scrutiny. The piece highlights the recent passage of the U.S. AI Governance Act, which introduces mandatory transparency requirements for AI systems used in financial services. Similar legislation is expected in the European Union, potentially increasing compliance costs for U.S. tech firms. Goldman’s research model incorporates a “policy risk” factor that could shave an additional 0.5–1.0 % from earnings in the technology sector.

Beyond policy, the analysts point out that public sentiment around privacy and bias is causing companies to adopt more cautious AI strategies, thereby slowing product roll‑outs. A referenced Fortune article on “AI ethics and consumer trust” provides further context on how these factors may dampen near‑term revenue growth.

6. Bottom‑Line Takeaways for Investors

The Goldman Sachs article ends with a practical “five‑point playbook” for investors:

1. Diversify beyond pure‑play AI stocks. While AI firms are still the fastest earners, a broader exposure to consumer discretionary and financials can hedge against a slowdown in earnings.
2. Watch supply‑chain metrics. Chip shortages are the biggest bottleneck for AI hardware—monitoring inventories and production capacities is key.
3. Beware policy risk. Regulatory changes can create sudden cost increases—keep an eye on policy developments in the U.S. and EU.
4. Stay tuned to macro data. Inflation readings, Fed rate paths, and core consumer spending are early indicators of a slowing cycle.
5. Keep an eye on valuation multiples. Even a mild earnings slowdown can trigger a re‑valuation of the S&P 500’s lofty P/E ratios.

7. Where to Go Next

The Fortune feature links to several additional articles for deeper dives:

• “AI’s Impact on the S&P 500: A Deep‑Dive” – a data‑rich analysis of AI’s contribution to index growth.
• “Semiconductor Supply Chain: Risks and Resolutions” – an industry‑wide look at chip shortages and geopolitical factors.
• “The U.S. AI Governance Act and Its Implications” – a legal perspective on new AI regulations.
• “Inflation and the Fed: What Investors Need to Know” – macro‑economic commentary from Goldman’s own team.

These links offer readers a comprehensive view of how AI’s inexorable march is being tempered by supply constraints, policy debates, and macro‑economic headwinds. For those watching the market, the key message from Goldman Sachs remains clear: AI will still power growth, but the rate of that growth will likely moderate in the near term, requiring investors to adjust expectations, diversify risk, and stay alert to the evolving regulatory landscape.