Semiconductor giant Nvidia (NASDAQ:NVDA) saw its equity value slip about 4% on Friday amid a broader market selloff. Heaping on the pressure is global hedge fund Elliott Management, which is warning investors that the tech firm appears to be in “bubble land.” Primarily, Nvidia stock may suffer due to an inability to efficiently extract productivity returns from artificial intelligence (AI).
According to Investing, the hedge fund told investors — in a letter that the Financial Times reviewed — that “overhyped” AI innovations have sparked the prior robust upside in NVDA stock. Experts at Elliott also expressed skepticism that high-volume sales of Nvidia’s graphics processing units will continue unabated. The problem is that machine-intelligence-based applications are “not ready for prime time.”
Elliott added to this argument, stating that AI protocols are “never going to be cost-efficient, are never going to actually work right, will take up too much energy, or will prove to be untrustworthy.”
For now, major tech enterprises — including Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META) and Amazon (NASDAQ:AMZN) — have been pouring billions into AI infrastructure. That includes buying Nvidia’s advanced GPUs. However, one mainline risk is that these entities may start developing their own homegrown processors.
Nvidia Stock Attracts Bearish Options Traders’ Attention
Elliott’s cautionary tone against Nvidia stock is akin to other rare but high-profile publications of skepticism. Perhaps most notably, Goldman Sachs issued a report in late June of this year that while the potential of generative AI has led to massive investments, “this spending has little to show for it so far.”
Of course, resource consumption adds to the overall concerns about Nvidia stock and other AI-related investments. As The Washington Post warned earlier this year, the burgeoning data-center ecosystem is straining the U.S. power grid.
It’s interesting to note that Elliott — despite its warning — does not believe investors should short AI-focused tech stocks. The hedge fund resoundingly stated that such an approach would be deeply foolish. Nevertheless, options traders appear to be ignoring this nuanced take on Nvidia stock.
According to Friday’s options flow data — which filters exclusively for big block transactions likely placed by institutional or professional traders — the net trade sentiment of NVDA options sits at $16.07 million below breakeven, thus favoring the bears. Net trade sentiment is calculated by totaling the premiums of derivatives with projected bullish and bearish intent and then determining the overall sentiment of a particular session.
TipRanks’ unusual options activity screener — which includes data between July 30 and Aug. 1 — also confirms pessimistic sentiment. Bearish sentiment options numbered 30 contracts, while bullish sentiment totaled 21, with one neutral.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in NVDA.
