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Steve Eisman, the investor made famous by “The Big Short,” warned this week that the artificial intelligence giants driving the stock market may lack the one thing that justifies their spending: a moat.
“You’re talking about massive companies spending trillions of dollars for something that may have no moats, and that’s not a recipe for longevity,” Eisman said on the latest episode of his podcast, The Real Eisman Playbook.
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Eisman’s argument is that customers switch freely between chatbots from OpenAI, Alphabet Inc. and Anthropic, leaving no pricing power behind the capital expenditure.
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He compared funding AI developers to buying airlines, a capital-intensive business with no pricing power, and said he would rather own the suppliers, echoing the dot-com era playbook that has made Cisco Systems Inc. and Nvidia Corp. the market’s favorite picks-and-shovels trades.
His guest, Apollo chief economist Torsten Slok, estimated AI spending now contributes roughly one percentage point of U.S. GDP growth, around half of this year’s total.
Eisman also flagged concentration risk at Oracle Corp., saying roughly half of its reported $600 billion backlog is tied to OpenAI. “It’s a little scary what’s going on,” he said.
Slok called software the “number one problem in credit,” noting the sector carries heavy debt loads and weak coverage ratios even before AI disruption enters the picture.
He warned of a looming $500 billion maturity wall hitting the software sector in 2028 and 2029.
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The classic 60/40 portfolio may no longer offer real diversification, Slok warned.
Mega-caps like Microsoft Corp. and Apple Inc. dominate the equity side, while Microsoft and its fellow hyperscalers are flooding the bond side with $700 billion in investment-grade debt this year, leaving both halves riding the same AI theme.
Slok said there is likely zero chance of a rate cut this year, with inflation near 3.5%.
Polymarket traders tend to agree, pricing zero rate cuts this year at 81%.
Traders appear less convinced by Eisman’s bear case, however.
Polymarket puts the chance of an AI bubble burst this year at just 17%, suggesting the market believes the moats, or at least the momentum, will hold for now.
“This AI story better work,” Eisman said. “Because if it doesn’t work, the losses that people are going to experience are going to be mammoth.”
Image: Shutterstock
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