"We're Approaching a Turning Point": A Trader from 'Shorting the Market' Reduces Risk

The investment boom surrounding artificial intelligence companies is approaching a “turning point,” said Steve Eisman, known as one of the prototypes for *The Big Short*. The investor reported that he has significantly increased the conservatism of his portfolio. However, he is not yet ready to open a net short position against the AI sector.

“I’ve become much more cautious in managing my own portfolio. We’ve opened offsetting short positions in many of our assets to significantly reduce risk. But I don’t have a net short position in the market,” Aizman said on CNBC’s “Squ awk Box ” on October 29.

Aizman's main cause for concern is cutting-edge AI labs. In his view, they exploit the atmosphere of fear surrounding their technologies to create a regulatory barrier against cheaper competitors and to mask their deteriorating financial performance.

Aizman’s analysis of Anthropic’s financial metrics—as the company prepares to go public—indicates a slowdown in revenue growth in the most recent quarter compared to the previous quarter. According to the investor’s calculations, Anthropic’s revenue-to-capital-expenditures ratio fell from 2.08 in the second quarter to 1.7 in the third. Aizman called this a significant change in trajectory and noted that the company’s filings point to issues with capital efficiency.

At the same time, Aizman is reluctant to make a definitive bet against the stocks of AI-related companies, since this segment is closely intertwined with the entire stock market. According to him, it is “impossible” to separate the technology sector from the rest of the stock market and the economy as a whole.

“Too much of the market is on the other side of this trade, and investors are still trying to make sense of the situation based on indirect clues. I think we’re approaching a turning point. Google’s numbers have spooked investors,” said Eisman.

Alphabet’s market capitalization fell by nearly $500 billion on October 29. The quarterly report released the day before showed that Google’s main source of revenue is experiencing slower growth due to changes in users’ online habits and the restructuring of search to incorporate AI. The company reported that the Google Services division—which includes search advertising, YouTube, and subscriptions—generated $96.3 billion in revenue, falling short of Wall Street’s expectations.

Eiseman has been consistently voicing skepticism about the AI sector over the past few months. Back in July, he reported that he had sold his Alphabet shares and suggested that a market correction could occur if the AI boom fails to live up to expectations.

In August, he called the hyperscalers’ dependence on OpenAI and Anthropic the “Achilles’ heel” of the entire AI supply chain, warning of the risk of a price war from cheaper Chinese open-source models. A month later, the investor called AI companies’ warnings about the dangers of the technology an attempt to “manufacture a crisis” in order to secure favorable regulation and reported that he was continuing to reduce his exposure to the sector.

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This article was AI-translated and verified by a human editor