The ‘Big Short’ investor Steve Eisman revealed his top AI picks in a podcast with Brandon van der Kolk, stating that he favors “picks and shovels” infrastructure companies over direct investments in large language models or cloud hyperscalers.
Focus on Infrastructure
Eisman explained that he avoids investing directly in large language model (LLM) developers due to an absence of long-term competitive moats.
“I wouldn’t invest in an LLM because I just think, as I said, there’s no moats,” Eisman said. He noted that users switch freely between competing models without staying locked into a single provider.
He also expressed caution regarding cloud hyperscalers spending heavily on data centers. Eisman stated that capital expenditure has eliminated free cash flows across major technology firms, pointing to Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL). Raising $85 billion in equity. “Today, because of the incredible amount of money that they’re spending on these data centers, their cash flow is gone,” Eisman said.
Key “Picks and Shovels” Selections
Instead of software developers or cloud platforms, Eisman stated that investors should target suppliers receiving those capital expenditures. He highlighted Nvidia Corp. (NASDAQ:NVDA), Micron Technology Inc. (NASDAQ:MU), GE Vernova Inc. (NYSE:GEV), Arista Networks Inc. (NYSE:ANET), Cisco Systems Inc. (NASDAQ:CSCO), and Eaton Corp. (NYSE:ETN).
“I would be looking at the companies that are getting that cash flow,” Eisman said, describing the strategy as focusing on “picks and shovels” over the “flashy software side.” He identified Eaton for industrial electrification and GE Vernova for power generation hardware.
Sector Concentration and Financial Risks
Eisman cautioned that a “massive concentration risk” affects the entire sector. He noted that 70% of Nvidia’s accounts receivable come from five customers, while 70% of hyperscaler AI revenue stems from Anthropic and OpenAI.
Eisman stated that both Anthropic and OpenAI “bleed money” to fund growth, leaving the supply chain vulnerable. “If they don’t grow and have the money to pay for those commitments, well then the whole chain slows,” Eisman said, warning that a failure by OpenAI could cause the U.S. to go into a “recession overnight.”
How Have These Stocks Performed?
| Stocks | 1-Month | 6-Months | YTD | 1-Year | 5-Years |
| NVDA | 4.25% | 31.88% | 25.44% | 23.86% | 1027.90% |
| MU | 12.43% | 193.49% | 276.61% | 484.97% | 1414.14% |
| GEV | 7.24% | 10.03% | 51.28% | 63.90% | 759.74% |
| ANET | 11.42% | 63.68% | 58.25% | 43.53% | 846.59% |
| CSCO | 2.50% | 41.99% | 45.66% | 64.25% | 103.48% |
| ETN | 11.58% | 20.77% | 36.92% | 15.75% | 189.49% |
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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