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Hedge fund Elliott Management told investors that Nvidia is in a “bubble” and that the artificial intelligence technology that is driving up the semiconductor giant’s shares is “overhyped.”
The Florida-based firm, which manages about $70 billion in assets, said in a recent letter to clients obtained by the Financial Times that big tech stocks, particularly Nvidia, are in a “bubble.”
He added that it was “doubtful” that big tech companies would continue to buy such large quantities of chipmakers’ graphics processing units, and that AI was “overhyped and many applications are not yet ready for prime time.”
Many of AI’s envisioned uses “will never be cost-effective, will not work properly in practice, will consume too much energy, or will prove to be unreliable,” the report said.
Elliott declined to comment.
The hedge fund’s warning comes as semiconductor stocks, which have enjoyed big gains fueled by investor enthusiasm about the potential of generative AI, are plummeting on concerns about whether big companies will continue to invest heavily in AI.
Shares in Intel fell 20% after the close of U.S. trading on Thursday after the chipmaker revealed plans to cut about 15,000 jobs.
Nvidia dominates the market for powerful processors needed to build and deploy large-scale AI systems, such as the technology underpinning OpenAI’s ChatGPT.
Companies including Microsoft, Meta and Amazon have spent tens of billions of dollars building out AI infrastructure in recent months, with much of that money going to Nvidia, even as many of Nvidia’s top customers are also developing their own competing chips.
The company’s shares have fallen more than 20% since late June, when its market capitalization topped $3.3 trillion, briefly making it the world’s largest company, as worries spread on Wall Street about the sustainability of AI investments.
But the chipmaker’s shares are still up about 120% this year and more than 600% since the beginning of last year.
In the letter, Elliott told clients that it has generally avoided bubble stocks like the Magnificent Seven. Elliott held $4.5 million worth of Nvidia stock as of the end of March, according to regulatory filings, but it’s unclear how long it held the shares.
The hedge fund is also wary of investing in fast-growing big technology stocks, arguing that shorting them could be “suicidal.”
Elliott, which was founded in 1977 by billionaire Paul Singer, added in its letter to clients that so far AI has failed to deliver the big productivity gains it had promised.
“There’s little real-world use for it beyond taking meeting notes, writing reports, or assisting with computer coding,” the company said.
He added that AI is effectively software that has so far not delivered “worth the hype.”
The company made a profit of about 4.5 percent in the first half of this year and has only posted losses in the two years since it was founded.
As for when the market bubble might burst, Elliott said it could happen if Nvidia reports bad numbers and “breaks the curse.”
