Wall Street's top hedge fund Elliott: Artificial intelligence is being overhyped, NVIDIA is in a bubble

According to media reports on Friday, Elliott Management, a top hedge fund on Wall Street, told its investor clients that large tech giants, especially NVIDIA, are in a bubble, with the artificial intelligence technology that is driving their stock prices violently rising being overhyped.

Elliott's negative views on artificial intelligence are as follows:

Many applications are not ready for prime time. Many so-called uses of artificial intelligence will never effectively save costs, never really work properly, consume too much energy, or will be proven unreliable.

So far, artificial intelligence has not delivered the promised significant productivity gains. Apart from summarizing meeting records, generating reports, and helping computers code, there are hardly any practical uses.

Artificial intelligence is actually a kind of software that has not yet brought value commensurate with the hype.

In recent months, companies including Microsoft, Meta, and Amazon have been spending billions of dollars to build artificial intelligence infrastructure, with most of the funds flowing to NVIDIA. At the same time, many of NVIDIA's largest customers are also developing their own chips. In response, Elliott questions whether large tech companies will continue to buy large quantities of NVIDIA's GPUs.

In the letter to clients, Elliott stated that it has largely avoided bubble stocks, such as the "Seven Sisters." Regulatory filings show that as of the end of March, Elliott held only a small position in NVIDIA, valued at around $4.5 million. As for when the market bubble might burst, Elliott stated that if NVIDIA's performance disappoints and breaks the spell, the bubble could burst.

While pointing out that large tech stocks are deep in a bubble, Elliott has also been cautious about shorting soaring large tech stocks, calling shorting these stocks potentially "suicidal."

Elliott declined to comment on the above views. Elliott Management manages around $70 billion in assets and was founded by billionaire Paul Singer in 1977. The company's performance in the first half of this year was a profit of about 4.5%, with only two years of losses since its inception.

Previously, U.S. chip stocks surged significantly due to investors' enthusiasm for the potential of generative artificial intelligence. NVIDIA dominates the market for powerful processors needed to build and deploy large artificial intelligence systems, with a particularly astonishing rise. However, the momentum of such stocks has cooled off, and the market is concerned about whether large companies will continue to invest heavily in artificial intelligence.

Concerns about the sustainability of artificial intelligence investments are sweeping Wall Street. NVIDIA's stock price has fallen by more than 20% since hitting a historical high in late June, when the company briefly became the world's largest company by market value, reaching $3.3 trillion.

Despite the significant pullback, as of Friday's close, NVIDIA has risen nearly 120% year-to-date and over 600% since the beginning of last year.

An article on the Wall Street See News website pointed out that in this earnings season, Google, Microsoft, and Amazon have consecutively "failed" in their financial reports, with Google and Microsoft's stock prices falling by over 8% cumulatively since announcing their financial reports, and Amazon dropping nearly 9% in one day, indicating that Wall Street does not believe that pouring money into AI will bring returns As the most obvious beneficiaries of generative AI businesses, the cloud computing departments of the three giants showed steady growth in the second quarter. However, this is not enough to appease investors, who are increasingly eager to see returns from the massive investments in data centers and other AI infrastructure.

Barclays recently pointed out that the "FOMO" (fear of missing out) sentiment was vividly displayed during the 2000 Internet bubble, and today in the field of AI, history may be repeating itself. "AI splurging" is the "FOMO" of the big players, but it is expected that some will retreat next year, yet in the long term, it is still in the early stages