Goldman Sachs Exec Says High Leverage Could Spark Volatility in AI and Semiconductor Sectors: ‘3% Can Turn Into 10% Very Quickly’

A Goldman Sachs executive is warning that high levels of leverage in the market could spark volatility in the artificial intelligence and semiconductor sectors.

Shawn Tuteja, a managing director who oversees ETF and custom baskets volatility trading, says in a new interview that the market is underappreciating the potential for two-way volatility.

“What worries me a bit more about the market right now, especially the semiconductors and AI story, is how much leverage there is in the system. There are a lot of levered ETF products that have launched that get you 2x exposure to semiconductors or 3x exposure to semiconductors. And those products inherently are what we call short gamma products. Meaning, to keep their constant leverage on days when the underlier is up, they need to buy a bunch on the rebalance. And on days when it goes down, they need to sell a lot.

And so, the reason that worries me is as leverage increases and as positioning and exposure increases, you could have a moment where something fundamental comes out that’s negative and a stock should be down 3%. But because of all these deleveraging forces that exist in the market, 3% can turn into 10% very quickly on the downside. Just like we’ve seen it turn into that on the upside.”

Tuteja notes that while he expects volatility, he doesn’t believe the market is in a bubble.

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