Goldman Sachs has warned that a reduction in AI investment could reduce the S&P 500 by 15-20%. This concern arises due to the prominent role of AI-linked companies in the index.
Currently, AI spending remains robust. However, some analysts predict a marked slowdown by late 2025, which could adversely affect stock valuations.
Nvidia And The AI Giants
Nvidia alone constitutes 7% of the S&P 500. The top eight AI-focused companies account for over 36%, highlighting their influence in the market.
Outside the top 10, companies like Oracle, Palantir, and Cisco contribute to the AI sector’s weight within the index. If AI investment decreases, the S&P 500 could face widespread impacts.
Goldman Sachs has not forecasted an immediate downturn. However, they caution that a decline in AI spending in the future may pose a risk to S&P 500 valuations, particularly affecting tech-heavy benchmarks.
Given the current market structure on September 15, 2025, we must consider this warning seriously. With the S&P 500 trading above 6,000, a 15-20% drop represents a significant risk to portfolios that have ridden the AI wave all year. The index’s fate is tied to a handful of names, where giants like Nvidia and Microsoft now account for over 36% of the S&P 500’s total market capitalization.
Hedging Against Potential Downturns
In the coming weeks, we should look at volatility as an undervalued asset. The CBOE Volatility Index (VIX) has been hovering near multi-year lows around 13, making protective options contracts relatively inexpensive. We can begin to build positions in longer-dated S&P 500 (SPX) put options or VIX call options that expire in the first quarter of 2026, aligning with the timeline of the potential spending slowdown.
This is a time for hedging, not panic selling. For those of us with significant long exposure to tech, buying out-of-the-money put options on the Nasdaq-100 ETF (QQQ) is a direct way to insure against a sector-specific downturn. The latest U.S. durable goods report for August 2025 showed the first dip in new orders for computers and electronic products in six months, adding statistical weight to these concerns.
We have seen this kind of market concentration before, particularly during the run-up to the dot-com peak in 2000. While today’s AI leaders have far stronger earnings, the parallel highlights how sentiment shifts can quickly re-price an entire market. Therefore, we could use put ratio spreads to create downside protection that also profits from a modest decline or even a period of sustained high volatility.
