Steve Eisman Takes a Conservative Approach to AI Investments

Renowned investor Steve Eisman, the subject of the film The Big Short, has adopted a more conservative strategy in his portfolio, stating that the AI sector is nearing a tipping point and that they have implemented hedges (short against the box) on various positions to reduce risk.

In an appearance on CNBC's Squawk Box, Steve Eisman stated that while he is not taking a net short position against the AI trade, they have significantly reduced their risks. Eisman argued that leading AI models are building a regulatory wall against cost-efficient products and are leveraging a climate of fear to mask weakening fundamentals.

Pointing to capital efficiency issues in the sector, Eisman noted that according to an analysis he was presented with, the revenue-to-equipment expenditure ratio fell from 2.08 in the second quarter to 1.7 in the third, signaling a significant shift in trajectory. He also noted that some parts of Anthropic's IPO filing do not provide a clear picture of its financial situation and that he believes revenues will show a significant slowdown compared to the previous quarter.

Eisman expressed hesitation to make a definitive bearish bet, stating that because the AI trade is so intertwined with the broader market, it is impossible to isolate the sector from the wider equity market and the rest of the economy. He added that the decline in Alphabet shares following Wednesday's earnings report due to a slowdown in the advertising business, and Google executives' comments on the low monetization impact of AI-mode queries, have caused concern in the market.