Muddy Waters CEO Cautions Against Shorting Nvidia Amid AI Boom

Warning Against Shorting Major Tech Stocks

Despite the growing chorus of warnings about a potential artificial intelligence (AI) bubble, Carson Block, the CEO of prominent investment firm Muddy Waters Capital, believes now is not the time to bet against the biggest U.S. technology companies.

In a recent interview, Block stated, "In this market, I’d rather be long than short. If you’re trying to short Nvidia (NVDA) or any of these tech behemoths right now, you’re not going to last long in this business."

Market Volatility and Valuation Concerns

The U.S. stock market has experienced volatility recently, driven by investor concerns about potentially overstretched valuations in technology stocks. The S&P 500 index has fallen more than 3% from its October peak, and executives at both Goldman Sachs and JPMorgan Chase have voiced similar concerns about the possibility of further market declines.

However, after the close of trading on Wednesday, Nvidia announced unexpectedly strong revenue forecasts, partially easing fears of a bubble. Nasdaq 100 futures, which are heavily weighted towards tech stocks, rose 1.5% on Thursday.

Nvidia's Strong Performance

Fueled by surging demand for its high-end AI data center chips, Nvidia reported record sales of $57 billion for the quarter ended in October, up 62% year-over-year and surpassing consensus analyst expectations. The company also raised its financial guidance for the current quarter, forecasting sales of $65 billion, above analysts’ estimates of $62.1 billion.

With the AI craze in full swing, Nvidia's quarterly earnings reports are being viewed as a sort of "financial Super Bowl," seen as a barometer for the health of the technology industry and the market as a whole. A Bank of America survey this week revealed that 45% of global fund managers consider an AI stock market bubble to be among the significant risks facing the market.

Focus on Smaller AI Companies

While he doesn't recommend shorting the major players, Block indicates he is closely watching a number of smaller companies involving AI for potential shorting opportunities.

"There are a lot of AI-adjacent companies, or AI pretenders, and that’s where you should be looking for shorting opportunities," he says. "However, as long as the leaders like Nvidia are continuing to move higher, that’s a very dangerous trade."

He adds that the passive trading boom has "broken the market, it has dramatically undermined the price discovery function."

"It doesn’t matter how expensive Nvidia gets," Block says, "All the funds that buy the S&P 500, unless there are net outflows, they’re not going to sell Nvidia. As long as there are inflows, they will buy it every day regardless of the price."

At the Sohn London Investment Conference on Wednesday, Block unusually disclosed a long position in Canadian mining company Snowline Gold Corp. Snowline’s stock subsequently surged 23%.