Steve Eisman assigns a 70% probability to the AI boom ending in a bear market or something worse. In the latest episode of The Real Eisman Playbook, Eisman gave a 40% probability to excessive investment causing a bear market despite AI succeeding. Eisman assigned another 30% probability to AI disappointing expectations and causing a market crash and US recession. Eisman gave the bullish scenario a 30% probability.
Oracle reported contracted backlog of $664 billion in September. Eisman said roughly half of that backlog depends on OpenAI, potentially leaving Oracle vulnerable if OpenAI struggles. Eisman said, "I'm starting to think that the demise of OpenAI would push the U.S. into an immediate recession." However, Eisman emphasized that Eisman was not predicting OpenAI's failure. Reuters reported on Monday that banks are becoming more cautious about funding AI infrastructure.
Eisman cited expectations for technology giants to spend about $850 billion on AI infrastructure this year. Eisman also cited research indicating that US data center capacity could amount to twice actual demand by late 2027. Eisman argued that capital expenditure substantially exceeds demand in the scenario assigned a 40% probability. Eisman compared AI with railroads and the early internet, which changed the world but also produced many bankruptcies. Eisman became known for betting against housing before the 2008 crash.
Eisman argued that OpenAI and Anthropic have limited defenses against cheaper models from China, allowing customers to change providers easily. Eisman acknowledged that OpenAI and Anthropic have better models, but argued that customers do not always need that level of quality. OpenAI's revenue reached $6.7 billion in the June quarter, an 18% increase from the March quarter. OpenAI's operating loss increased by $3 billion to $12.3 billion. The Wall Street Journal reported that Anthropic's revenue more than doubled to $11.6 billion over the same period.
Polymarket traders on Tuesday assigned about a 6% probability to an AI bubble bursting by December 2026. Traders assigned about a 23% probability to a burst by June 2027. The contract requires three severe events during a 90-day period, with examples including steep chip-stock losses or an AI developer filing for bankruptcy. A less severe bear market, such as Eisman's 40% scenario, might therefore fail to meet the contract's conditions.
Polymarket prices put Alphabet's probability of having the highest-ranked AI model at year-end at roughly 71%. The corresponding probabilities were 21% for Anthropic and 2.5% for OpenAI. Traders appear to share Eisman's skepticism about OpenAI.
Eisman finds AI suppliers such as Nvidia and Micron Technology more attractive. Eisman said those suppliers do not necessarily have to identify the large language model that ultimately wins.
Steve Eisman Warns Oracle Could Suffer if OpenAI Struggles
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Summary
Steve Eisman, the 2008 housing market short-seller, warned Oracle could face risks if OpenAI struggles, possibly triggering a U.S. recession. On-chain data shows about half of Oracle’s $664 billion backlog relies on OpenAI. Eisman also raised concerns about AI infrastructure overinvestment and market corrections. Altcoins to watch may react to broader tech sector shifts.
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