‘Big Short’ investor Steve Eisman: Market will have 'a big correction' if AI doesn't succeed
Speakers
Steve Eisman
— Portfolio Manager, Scion Asset Management
Summary
Steve Eisman warns the market is a binary bet on AI, with a big correction if AI fails. He sold Google to reduce AI exposure and is sitting in cash, calling defensive stocks like Clorox dead money. He sees Nvidia profiting from circular AI deals and views oil as oversupplied, making prices not a worry. The Fed meeting is irrelevant.
- Market concentration in AI is extreme; even 60/40 portfolios are essentially one trade on AI.
- Eisman sold Google to lighten AI exposure and is not buying defensive names.
- Defensive stocks like Clorox are a waste of time because nobody wants to rotate out of AI.
- Nvidia benefits from convoluted AI-related deals; profitability likely remains intact.
- Oil faces oversupply from China's reduced buying, overproduction, and new pipelines; no price spike worry.
- He holds cash awaiting clarity on the AI outcome.
- Fed meeting is seen as entirely irrelevant to the current market direction.
Ideas
Sell Google to reduce AI exposure
Sold Google (Alphabet) to reduce AI exposure because the entire market is too concentrated in AI, and he felt the need to lighten up. He hasn't bought anything defensive because they don't go up and nobody wants to rotate out of AI into names like Clorox.
Clorox is dead money
Buying defensive or staple stocks is a waste of time because they don't go up. People either want to buy AI or they don't want to buy AI, but they won't shift out of AI to buy Clorox, so Clorox won't see upside.
Big correction if AI fails
The market is a binary trade on AI; if AI doesn't succeed, a big correction will happen. Even diversified 60/40 portfolios are heavily exposed because tech/AI dominates equities and a large share of new bond issuance is AI-related.
Oil oversupply keeps prices down
Oil prices are not a worry because there is an actual oversupply: China has basically stopped buying, there is overproduction, and new pipelines bypassing the Strait of Hormuz will soon be finished.
Nvidia profits from circular AI deals
Circular AI deals between companies like Nvidia and OpenAI are convoluted and incestuous, but Nvidia is not doing it for free and is likely profiting from these machinations.
