Elliott Management warns of AI bubble: Skepticism towards Nvidia and the AI industry

Elliott Management, a hedge fund with an investment volume of around 70 billion dollars, has raised concerns regarding Nvidia and the AI industry. The company describes the current situation as a 'bubble' and casts doubt on the sustainability of current AI investments. Elliott Management considers many AI applications to be neither viable nor cost-efficient. The hedge fund is particularly skeptical about the ongoing purchases of Nvidia's GPUs by large technology companies, suggesting that such purchases might not continue at this volume. Elliott Management questions the practical utility and efficiency of many AI technologies and suspects that they will not deliver the promised returns. A partner at Sequoia Capital recently calculated that the AI industry would need to generate at least 600 billion dollars annually to justify the investments made so far. However, the industry is far from reaching this target. Elliott's comments come amid a rally in AI-related stocks driven by investor enthusiasm for generative AI. Meanwhile, Nvidia has lost nearly 600 billion dollars in market capitalization since early July, which is quite telling. Recent trends indicate a general decline in semiconductor stocks, reflecting concerns about the sustainability of expenditures in this sector. For instance, Intel's shares have fallen by 30% following significant layoffs announced by the company, highlighting the volatility of the industry. The hedge fund warns that a market correction could occur if Nvidia's financial results disappoint, potentially shaking investor confidence in the AI sector. Additionally, many companies in the AI sector are privately held, meaning that their financial viability is not sufficiently transparent. Elliott notes that AI has not yet delivered the significant productivity gains that were promised, with most applications being limited to tasks such as summarizing notes, generating reports, and assisting in coding. Despite Elliott Management's cautious investment strategy, which largely avoids so-called 'bubble stocks,' the company's involvement with Nvidia was minimal, amounting to approximately 4.5 million dollars as of March.