Elliott Management, a hedge fund with approximately $70 billion in assets, has raised concerns about Nvidia and the AI industry, describing them as being in a 'bubble,' reports Financial Times. The firm doubts the sustainability of current AI investments and believes that many AI applications are not viable or cost-effective.
The hedge fund expressed skepticism about the ongoing purchases of Nvidia's GPUs by large technology companies, stating that these companies may not continue to buy in such large quantities. Elliott Management questioned many AI technologies' practical utility and efficiency, suggesting that they may not deliver the promised returns. Elliot Management is certainly not the only one to express concerns about the AI industry as a partner of Sequoia Capital recently calculated that the AI industry needs to make at least $600 billion per year to pay for the already made investments. The AI industry is not even close to that number.
Elliott's commentary comes amid a rally in AI-related stocks, driven by investor enthusiasm for generative AI, the FT says. Meanwhile, Nvidia has lost nearly $600 billion in market capitalization since early July, and that says something.
Recent trends have shown a general pullback in semiconductor stocks, reflecting concerns about the durability of spending in this sector. For example, Intel shares dropped 30% after announcing significant layoffs, highlighting industry volatility.
The hedge fund warns that a market correction could occur if Nvidia's financial results disappoint, potentially shaking investor confidence in the AI sector. Meanwhile, most AI sector companies are private, which almost wholly means there is no adequate view of their financial viability.
Elliott notes that, so far, AI has not delivered the significant productivity boosts promised, with most applications limited to tasks like summarizing notes, generating reports, and assisting in coding.
Even considering Elliott Management's cautious approach to its investment strategy (the firm has largely avoided what it calls 'bubble stocks'), according to FT, its stake in Nvidia is minimal, and it was worth about $4.5 million as of March.
