Ask HN: Is anyone shorting the overspend in AI yet?

Posted by ggm 6 days ago

1916Original

I and a small cohort of friends truly believe that the "$1T" floats are going to burn capital. We think this is a disaster of landgrab spend, and that the cost of a token cannot be recovered by future commercial use.

If this theory is correct, then following on from the housing debt crisis, this is a hollow shell and so somebody in finance should be shorting the floats, and betting on a crash to clean up.

Polymarket betting aside, is anyone able to confirm that there are funds looking at a short play in the AI space, or is everyone on-board with things and nobody is taking the other side of the bet?

I am not in fintech or investing, I am not seeking alpha to do this, I don't invest directly. I am however interested in validating my theory that somebody smart out there sees a huge upside in the explosion when this attempt to buy market share in Unicorn juice explodes.

NVDA as an example has under 2% of its trade in shorts. I can't tell if thats big or small TBH. Feels small.

Comments

Comment by bigyabai 6 days ago

Who replaces Nvidia? That's the 5 trillion dollar question, and nobody has stepped forward to answer it.

The closest the industry came to replacing CUDA was with Khronos and OpenCL, but that ship has sailed. CDNA, Apple Silicon, Intel Inside, none of them are trying to take Nvidia's crown. The niche for HPC will exist, and Nvidia continues to serve the niche while others turn up their nose.

For my money, shorting Nvidia is like betting on Glass Joe to beat Mike Tyson. There's going to be incredible cloud spend on unglamorous stuff like defense and automated computer vision, and that will keep Nvidia's demand afloat even at a wild valuation.

Comment by Ekaros 6 days ago

With Nvidia no one needs to replace them. Their valuation is build on large demand and huge margins. Demand just going lower or margins dropping following that should lead to lower valuation without anyone replacing them.

I could very well see current market being in state of overinvestment. Meaning future demand is lower which could lead to less units sold thus lower profits thus lower valuation.

Comment by bigyabai 5 days ago

Nvidia's profits are built on demand and margins. Their valuation is constrained by their supply, Nvidia sells-out of almost all their datacenter hardware before it hits shelves. Even if the memory shortage never clears up, Nvidia is the best-poised company to buy memory at-cost and sell it for ludicrous prices.

For their margins to go down, that demand would have to be satisfied. And those customers by-and-large do not see any commodified CUDA alternatives on the market, they only want Nvidia hardware. Hence my question - who will rise to the challenge? If the answer is nobody, then you've just found out why people don't short Nvidia.

Comment by ggm 6 days ago

That's a substantive point, the GPUs are reprogrammable to do other tasks so the people who pay for massive CFD computation in Mil and Oil will have competitive offers, but I'm unsure the spectacular future value is there, if the perpetual "buy more" dries up. They could wind up alive, but with a smaller horizon.

I know I harbour resentment because of the knock on effects on ram and SSD pricing, but I'm serious that I think the amount of capital being sunk in hyperscalers does not look to me to be recoverable inside the investors ROI. If my example is poorly chosen, perhaps the people currently buying the kit are the ones destined to have a fall.

Comment by roryirvine 5 days ago

A related question might be whether anyone is seriously preparing for whatever opportunities present themselves after the bubble bursts.

For example, after the dot com bust, there was plenty of money to be made in aggregating bankrupt or underutilised telecoms assets - endless duct shares, dark fibre, and networking kit which could turn a profit if bought cheaply enough in a fire sale.

Is anyone preparing to bid pennies on the dollar for bankrupt AI datacentres? I can see how it might potentially make sense to do so in places like the EU or UK where increasing data sovereignty concerns might make locally-based small/mid-scale private inference an attractive proposition if the capital costs are low enough.

Comment by TimByte 5 days ago

Agreed. Shorting requires timing the market perfectly, but buying assets after a crash just requires having liquidity and patience. Historically, that's often been the safer play

After the dot-com bust, infrastructure assets turned out to be one of the most undervalued asset classes. Maybe in a few years people will look back on GPU clusters the same way they looked at dark fiber back then

Comment by freakynit 6 days ago

Did this research last week on the same thing:

NVIDIA (NVDA) — The Short / Underperformance Thesis - https://nvidia-stock-analysis.pagey.site/

This is pump and dump on the largest scale we have ever seen. It's effectively privatize the profits and socialize the losses.

Comment by Schiendelman 4 days ago

This doesn't make sense. It completely misses that there are tons of other companies that will happily take the Nvidia capacity at the same price if their biggest customers reduce spend.

Comment by da-x 6 days ago

AFAIK Michael Burry is shorting it via PUT options — can look into what he is doing.

Comment by atleastoptimal 4 days ago

Betting against deep learning has been a losing game over the past 5 years.

As long as the models keep getting better, you will keep losing betting against them.

Comment by rowbin 6 days ago

Many have theorized this. But i wouldn't bet money on it, the timing is just too unpredictable IMO.

Comment by bnova 2 days ago

Are you trying to do LEAP puts?

Comment by NoahZuniga 6 days ago

The market can stay irrational longer than you can stay solvent.

Comment by ggm 6 days ago

I absolutely do NOT want to do this. I am asking if any of the people with real money and fintech are doing this. Not because I want to, because I want to UNDERSTAND.

Comment by TimByte 5 days ago

I think a lot of people are mixing two different ideas: AI is overhyped and AI company stocks are about to crash. The first might well be true, but the second might not be. The dot-com bubble burst too, but the internet didn't go away. The question is more about who will be left standing once the era of endless capex growth ends.

Comment by Mistletoe 1 day ago

There is no need to short. Just simply being in cash or assets uncorrelated to the stock market will be plenty. Study what outperformed after the dot com bubble burst. Things like gold, small cap value, and long term treasuries did well. And the great thing is you don’t have to time it, those assets historically provide great returns rain or shine.