Steve Eisman turns more conservative as AI trade nears 'tipping point'
The investor known for 'The Big Short' has cut risk in his portfolio and is wary of frontier AI models, but says he is not yet betting against the trade.
At a glance
- Steve Eisman says he has made his portfolio more conservative as the AI trade nears a 'tipping point'.
- He has shorted against the box on many positions but says he is not net short any.
- Eisman is wary of frontier AI models and of Anthropic's IPO filing, which left revenue figures blank.
Investor Steve Eisman, known for "The Big Short," says the artificial intelligence trade is approaching a "tipping point," and he has responded by making his own portfolio more conservative — though he is not yet willing to bet outright against it.
Speaking on CNBC's "Squawk Box" on Thursday, Eisman said he had "shorted against the box" a large number of his positions to bring his risk down substantially, but added: "I'm not, like, net short any."
Concern over frontier AI models
Eisman's main worry is the frontier algorithm models, which he believes are exploiting a climate of fear around their technologies. In his view, that fear is used to build a competitive regulatory moat against more cost-efficient products and to obscure some faltering fundamentals. He noted that prominent figures in the technology industry have issued similar warnings.
Anthropic left its latest revenue figures blank in its initial IPO filing. Eisman believes those figures will show a significant deceleration from the prior quarter. Other numbers in the report point to a capital efficiency problem, he said.
Citing an analysis he had been given, Eisman said the ratio of revenue to equipment expense was 2.08 in the second quarter and 1.7 in the third — a significant change in trajectory.
Portions of Anthropic's recently filed S-1 struck him as "extremely negative," he said, because it did not contain many metrics for the upcoming quarter that would give a clearer picture of the company's financial situation.
Alphabet's results and market spillover
Eisman pointed to Alphabet, whose stock fell sharply after it reported earnings on Wednesday. The drop followed a pullback in its core advertising business as AI queries displace internet search across its products.
Google executives said Wednesday they were running experiments to work out what to do about it. Philipp Schindler, the company's chief business officer, said the strong growth in AI mode queries had an impact "because of the lower monetization we are seeing in AI mode," adding that advertising experiments had shown promising results.
Eisman said he is reluctant to make a definitive bet against the AI trade because of how tightly it is intertwined with the wider market. He called it "impossible" for the technology sector to be separated from the broader equity market and the rest of the economy.
"So much of the market is on the other side, and it's still reading tea leaves," he said. "I think we're getting closer. I think the numbers from Google scared people."
Source: CNBC.
Questions and answers
- What did Steve Eisman say about the AI trade?
- He said the AI trade is nearing a 'tipping point' and that he has become much more conservative in his own portfolio, shorting against the box on many positions while not being net short.
- Why is Steve Eisman concerned about frontier AI models?
- He believes they are exploiting a climate of fear around their technologies to set up a regulatory moat against cheaper products and to obscure faltering fundamentals.
- Why won't Steve Eisman bet against the AI trade?
- He says the technology sector cannot be siloed from the broader equity market and economy, and that much of the market remains on the other side of the trade.
