"The Big Short" investor Steve Eisman has revealed that he has reduced his artificial intelligence-related holdings, completely selling off his long-held Alphabet shares. He warns that if the AI boom fails to meet the market's high expectations, investors are likely underestimating the hidden risks.
Eisman stated on Monday's program that he had already lightened his positions. He mentioned selling Google shares several months ago, noting he had held them for so long he couldn't even remember the exact timeframe, all with the goal of reducing his exposure to AI. This statement comes as the previously surging tech stock rally takes a breather. The S&P 500 and Nasdaq Composite indices have now fallen for two consecutive weeks, dropping 0.6% and 2.1%, respectively. Shares of Google and Uber parent company Alphabet fell nearly 8% last week after raising capital expenditure forecasts, highlighting the massive investment required to build AI infrastructure.
Eisman did not move the cash from those sales into defensive sectors. He believes the current market is only focused on AI, leaving traditional safe-haven areas like consumer staples ignored. "Money is either all in AI or completely out of AI right now. No one is willing to exit AI to buy a consumer staple stock like Clorox." When asked what kind of market scenario could unfold if AI implementation falls short, Eisman stated, "The market is going to see a deep correction."
Eisman is not shorting the entire market, but he is concerned that investor holdings are heavily concentrated in the single narrative of AI. "The whole market is essentially making the same trade. A lot of people think they are diversified, like 60% stocks and 40% bonds, but they are not. In that 60% stocks, more than half are tied to tech and AI. In that 40% bonds, most new issues are also linked to the AI industry... What truly makes me uneasy is the homogeneity of the market's bets." The investor said he is currently holding a large amount of cash while waiting to determine his next allocation strategy.
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