Big Short Reunion w/ Danny Moses: Rising Rates, AI & Private Equity | The Real Eisman Playbook Ep 80

NVIDIA

Across the shows: 14 speakers in other episodes, 12 bullish and 5 bearish calls, past 30 days

• Danny Moses · Moses VenturesBearish

  Nvidia's high gross margins will erode as competition and commoditization arrive.

  Danny is surprised that Nvidia's gross margin has stayed in the high 70s, when he expected competition by now. He says the market questions whether AI chips are becoming a commodity, and that they will be, because anyone can build a fab and make these chips. Competition will come, though he says he doesn't know when. He points to Micron trading at 8-9x earnings as a sign of how the market views memory chip commoditization.

  “Nvidia's gross margin staying up in the high seventies. If you told me two years ago that we would still be in the high seventies, I'm like, there's no chance. ... Some point competition comes.”at 12:09

• Steve Eisman · The Real Eisman PlaybookUncertain

  Nvidia's revenue beat hides concentration risk: 70% of receivables come from five accounts.

  Eisman says Nvidia's revenue rose roughly 110%, but the 10-Q showed that about 70% of accounts receivable comes from five customers. He compares this to a software IPO he saw that had only three customers, which an analyst refused to take public. He argues that the AI chain depends heavily on the health of OpenAI and Anthropic, which have no clear financials. He says this concentration is a real risk, though he is not telling people to short the AI trade.

  “But the next day you got the 10 Q. And the 10 Q said that 70% of Nvidia's accounts receivable is from five accounts.”at 22:39

Meta Platforms

Across the shows: 13 speakers in other episodes, 12 bullish and 5 bearish calls, past 30 days

• Danny Moses · Moses VenturesBullish

  Meta is a buy on pullbacks given its strong business and ability to cut AI capex.

  Danny likes Meta on pullbacks because of its incredible business. Hyperscaler capex has in some cases turned down, and the company can turn off its capex spending whenever it chooses, since its cash flow is strong. He sees it as far more secure than AI infrastructure names that depend on external financing.

  “I love Alphabet, Amazon, Meta, Microsoft on pullbacks. Why? Because they have an incredible business.”at 15:22

Microsoft

Across the shows: 3 speakers in other episodes, 2 bullish and 0 bearish calls, past 30 days

• Danny Moses · Moses VenturesBullish

  Microsoft is a buy on pullbacks given its strong business and ability to cut AI capex.

  Danny likes Microsoft on pullbacks because of its incredible business. Hyperscaler capex has in some cases turned down, and the company can turn off its capex spending whenever it chooses, since its cash flow is strong. He sees it as far more secure than AI infrastructure names that depend on external financing.

  “I love Alphabet, Amazon, Meta, Microsoft on pullbacks. Why? Because they have an incredible business.”at 15:22

Amazon.com

Across the shows: 5 speakers in other episodes, 1 bullish and 3 bearish calls, past 30 days

• Danny Moses · Moses VenturesBullish

  Amazon is a buy on pullbacks given its strong business and ability to cut AI capex.

  Danny likes Amazon on pullbacks because of its incredible business. Hyperscaler capex has in some cases turned down, and the company can turn off its capex spending whenever it chooses, since its cash flow is strong. He sees it as far more secure than AI infrastructure names that depend on external financing.

  “I love Alphabet, Amazon, Meta, Microsoft on pullbacks. Why? Because they have an incredible business.”at 15:22

Alphabet

Across the shows: 6 speakers in other episodes, 4 bullish and 2 bearish calls, past 30 days

• Danny Moses · Moses VenturesBullish

  Alphabet is a buy on pullbacks given its strong business and ability to cut AI capex.

  Danny likes Alphabet on pullbacks because of its incredible business. Hyperscaler capex has fallen in some cases, and the companies can turn off the capex spending whenever they want, since they have enough cash flow. He sees them as much more secure than AI infrastructure names that depend on external financing.

  “I love Alphabet, Amazon, Meta, Microsoft on pullbacks. Why? Because they have an incredible business.”at 15:22

OpenAI

Across the shows: 14 speakers in other episodes, 5 bullish and 14 bearish calls, past 30 days

• Danny Moses · Moses VenturesUncertain

  OpenAI must show it can make a profit; its survival is uncertain.

  Danny says he has no idea whether OpenAI will make it. He wants to see the math on both enterprise and consumer demand, along with token pricing and the debt that has been raised. He says that at some point OpenAI needs to show it can make a profit, and he has not seen the math that proves it.

  “I have no idea if OpenAI is gonna make it or not. ... At some point you're gonna need to show that you can make money, a profit.”at 15:49

Anthropic

Across the shows: 19 speakers in other episodes, 13 bullish and 34 bearish calls, past 30 days

• Danny Moses · Moses VenturesBearish

  Anthropic is burning cash heavily and must show it can turn a profit.

  Danny says Anthropic is burning cash like crazy and that at some point it has to show it can make money. He wants to see the math on demand from enterprises and consumers, and on how pricing and the debt build up over time. He is skeptical of the economics of the leading AI labs.

  “I know we've had people in the show talk about it, anthropic, these guys are burning cash like crazy. At some point you're gonna need to show that you can make money, a profit.”at 15:51

CoreWeave

Across the shows: 12 speakers in other episodes, 3 bullish and 10 bearish calls, past 30 days

• Danny Moses · Moses VenturesBearish

  CoreWeave is a WeWork-like AI trade with a debt and lease-term mismatch; he would not own it.

  Danny calls CoreWeave the WeWork of the AI trade. It buys long-term assets like ships and has big clients, but it has moved into renting capacity on shorter terms. That creates a potential mismatch on its balance sheet, with about $51B of debt including leases. He says he is not sure about the path to profitability and has not done enough analysis. Either way, it is not a stock he wants to own to express his AI view. He flags it as one of the names that is not as financially sound as others.

  “It's really like a WeWork of kind of the trade. Yes, they're buying ships.”at 16:41

US Treasuries & yields

• Danny Moses · Moses Ventures

  Treasury's short-to-long bond swap is too small to matter; rates are in a secular higher regime.

  Danny argues that Treasury's attempt to push down long-term yields by issuing short-term bonds to buy long-term bonds is symbolic. The Treasury market is too big for such a move to change the curve, and he says the market already knows the position. He also says the Fed cannot control the long end either: raising short rates is the only tool that would work against inflation, and buying about $20B of tenure does nothing. He sees the rate cycle as more secular than cyclical, since rates were suppressed for so long and the debt load has grown sharply.

  “Nobody's bigger than the market itself. Doesn't matter if it's the Fed trying to control the short end or if Treasury trying to control the long end. It's too big of a market.”at 6:26

• Steve Eisman · The Real Eisman Playbook

  AI debt issuance crowding out Treasuries keeps underlying rates higher for longer.

  Eisman expects underlying interest rates to stay higher for longer. His evidence is roughly $500B of AI-related debt issuance this year, and growing. He argues this private-sector borrowing is large enough to crowd out Treasuries, which he says has never happened before at this scale.

  “I agree that the level of underlying rates is going to be higher for longer. The fact that 500,000,000,000 of AI issuance is taking place this year And growing. Is crowding out.”at 9:05

• Steve Eisman · The Real Eisman Playbook

  No serious alternative to Treasuries exists, so US deficit worries matter less for now.

  Eisman says he has deficit concerns but argues the US is the reserve currency and the global financial system runs on Treasuries. He says he sees no alternative. If a serious alternative existed, such as repos backed by Bitcoin or another asset, investors could leave Treasuries and the deficit problems would become far more important. Without that alternative, the deficit is less acute.

  “Because we are the reserve currency of the world and the entire world functions on... treasuries, I don't see the alternative.”at 39:08

• Danny Moses · Moses Ventures

  Rising bond yields may partly reflect a term premium as investors demand more for fiscal risk.

  Moses compares the US with France and the UK, where investors pushed yields higher over concerns about funding. He says the US bond market may be experiencing some of this. Yields are moving higher partly because of growth, but he thinks they may also reflect a term premium, meaning investors demanding more pay for the risk of holding long bonds. He concludes that investors have to factor in a required higher yield.

  “We might be experiencing a little bit of that in our bond market... maybe part of its term premium, what people risk people into.”at 40:00

US housing

• Steve Eisman · The Real Eisman Playbook

  Housing is the sector to worry about; 7.5% mortgage rates are stopping buyers.

  Eisman says the housing sector worries him most. Mortgage rates are about 7.5%, and at that level people are not buying homes. He cites his own experience from a speech, where a young audience member asked whether buying a house is a good idea. His advice was to buy only if the payments are affordable, with no expectation of making money on the purchase.

  “one thing that I would be very nervous about right now is just the whole housing sector. ... mortgage rates are seven and a half percent. People are not buying homes at mortgage rates of seven and a half percent. They're just not.”at 9:29

• Danny Moses · Moses Ventures

  Buying a home as a wealth-building path is over; post-COVID generations think about it differently.

  Danny argues there has been a demographic shift since COVID. Younger people, including his own kids' generation, no longer view buying a home the way earlier generations did. He says the days of buying a house as a reliable financial move are completely over. He also notes that the top of the K-shaped economy keeps housing active (buyers paying cash), while the lower part is not transacting.

  “I think there's a demographic shift that has occurred since COVID. This generation, our kids age, whether they buy a home or not, they don't think of it like we used to.”at 9:45

AI infrastructure & data centers

• Danny Moses · Moses Ventures

  Nvidia's chip securitization with banks echoes the 2006-07 mortgage warehouse-line build-up.

  Danny sees a parallel between the AI infrastructure financing boom and the 2006-07 mortgage market. In the mortgage market, Wall Street lent to originators through warehouse lines as long as the economics held, then pulled them when loan values fell. Now Nvidia is partnering with banks on a securitization deal, and banks are starting to do these deals. He reads the Larry Fink comparison to mortgage-backed securities as a warning, because the structure resembles the earlier one.

  “So where are the similarities to two thousand and six and seven? I'll tell you where it is, especially with the news a few months ago about this securitization partnership between Nvidia and all the banks on Wall Street.”at 17:48

• Danny Moses · Moses Ventures

  AI spending is at least half of US GDP growth, so the economy cannot afford an AI slowdown.

  In response to Eisman's point on concentration, Danny says AI is at least half of GDP growth, which is massive. He argues that the economy cannot afford to take a step back. No one on Wall Street or in Washington wants to slow AI down, because that is the last thing they want to see.

  “Oh, it's at least half of GDP growth. It's massive. And so you can't afford to take a step back and take a deep breath.”at 23:43

Private equity

• Danny Moses · Moses Ventures

  Private equity has not been tested by a real downturn; AUM-gathering incentives are loosening underwriting.

  Danny calls private equity an excellent business because of its permanent capital and management fees. He says the industry is an AUM-gathering game, where firms raise funds one after another and need to deploy capital to keep raising more. That pressure may cause them to underwrite differently, with covenant-light loans and looser coverage ratios. He argues the sector has never had a real shutdown cycle since COVID, so it has not been tested. He also says it has replaced banks as a lender, though it is unregulated.

  “We haven't had a true shutdown cycle since COVID, which was a one off in that sector since it's been a secular growth story after taking assets away from the banking system. So it hasn't been tested yet.”at 26:05

• Steve Eisman · The Real Eisman Playbook

  Private equity faces a long period of trouble because it only works in low rates.

  Eisman says the time to monetize private equity investments has stretched from three to four years to around seven, and maybe ten. Few exits are happening. He argues that the business only works in low rates because it is leveraged, and rates keep rising. He also argues that investors moved into private equity to avoid the daily volatility of public markets, but PE is just as volatile. He expects the industry to go through a long period of troubled times.

  “I think the private equity business is going to go through a long period of very troubled times.”at 28:17

US inflation

• Danny Moses · Moses Ventures

  Inflation target has drifted from 2% to 3%, and cost of living is outpacing wages.

  Danny says the goalposts have moved from a 2% inflation target to 3%, as long as inflation is heading toward 2%. He says the cost of living is rising faster than wages. He expects that if oil eases with peace in the Middle East, inflation will come down, but he treats the drift in the target as a credibility problem.

  “we've moved the goalposts from that 2% number to the three, as long as it's going towards two, we're okay. But the cost of living is going up faster than wages.”at 7:26

US consumer

• Danny Moses · Moses Ventures

  Stock-market wealth now exceeds home equity, so a stock selloff is a bigger economic risk than housing.

  Danny says there is more household wealth in the stock market than in homes. He concludes that a stock market decline poses more risk to the economy than a housing downturn. He describes a K-shaped economy: the high end, which is buying housing with cash, keeps spending going, while the bottom is not transacting.

  “There's actually more wealth. There's more household wealth in the stock market right now than there is in people's homes.”at 11:00

AI bubble & tech valuations

• Danny Moses · Moses Ventures

  AI capex looks like the 1999 fiber bubble; the spending math may not work.

  Danny compares today's AI capex boom to the late-1990s fiber craze, when the internet's growth was real but the spending outran demand. He says that if you do the math on capex, fiber laid, leases and equipment financing, the economics fail. The companies were providing loans to buy their own equipment, and the fiber could have wrapped the globe ten times. He says the internet was real and produced winners and losers, so AI may also be real, but the math on AI capex needs to be checked.

  “The math didn't work. You could have wrapped that fiber around the globe 10 times. So stop and do the math back to where all this CapEx is on AI.”at 14:56

Private credit

• Danny Moses · Moses Ventures

  Private credit, now a couple trillion dollars and lent heavily to AI and tech, looks fragile.

  Danny says lending has moved outside the banking system into firms like Blackstone and Apollo, and the amount is a couple trillion dollars. Much of it has gone into AI and technology. He says nobody really knows the total exposure or what the money is funding, and that things feel fragile. He points to funds gating redemptions at 5% because requests exceed what they will pay out. He also notes that marks are model-based rather than market-based, which gives managers little reason to mark down, and that covenant-light loans and coverage ratios are a concern.

  “A couple trillion dollars, what are they doing? Private credit. And a lot of the private credit trade has lent itself into the AI growth sector and the technology sector.”at 20:30

Private markets for individual investors

• Danny Moses · Moses Ventures

  Retail is getting private deals that institutions pass on, a sign of weak demand.

  Danny asks why retail investors are being offered private deals at all. His answer is that they are offered to fill deals that institutions have not taken. He compares this to IPOs that institutions avoid, where retail is stuffed with the leftover shares. He thinks the private markets are overstaying their welcome by giving retail investors access to everything institutions have, and he warns to be careful what you wish for.

  “Institutions don't pass on good deals. There's always, It's like an IPO in equities. When the IPO doesn't work, when the hedge funds and all the large institutions don't want it. And they get stuff. Stuff retail.”at 29:30

US deficit & government debt

• Steve Eisman · The Real Eisman Playbook

  US and France both have ~120% debt-to-GDP and both are politically paralysed about cutting deficits.

  Eisman compares the US with France: their debt-to-GDP is roughly the same at about 120%, and both governments are politically unable to cut deficits. He cites Marine Le Pen's proposal to lower the French retirement age from 63 to 60, which would widen the deficit further, and notes French rates are rising. He draws a parallel with the US, where neither side has an appetite to cut spending.

  “The debt to GDP in France and The US is roughly the same, about 120. France, like us, is completely... politically paralyzed.”at 38:20

US dollar

• Danny Moses · Moses Ventures

  Dollar's share of global reserves has fallen from 71% to 57%, yet taking its status for granted is risky.

  Moses cites the dollar at 57% of world reserves, down from 71% a couple of decades ago. He says it is still dominant and not going anywhere. He adds that BRICS nations have discussed creating their own currency, and that investors take the dollar's reserve status for granted, which he calls playing with fire.

  “The dollar is 57% of the world's reserve currency. It was 71% a couple of decades ago. It's dropping, still dominant. It's not going anywhere.”at 40:16

Gold & precious metals

• Danny Moses · Moses Ventures

  Gold is now the top central bank reserve holding, ahead of US Treasuries.

  Moses says global central banks' largest holding is now gold at 27% of reserves, ahead of Treasuries at 22%. He notes gold has risen in price, which he links to it overtaking Treasuries to a degree. He treats this as one of the things behind his concern about the dollar and the reserve system.

  “Central banks, global central banks, number one holding is not US treasuries. It's gold at 27% treasuries are 22%.”at 40:22

US rates & the Fed

• Danny Moses · Moses Ventures

  QE is coming again; the only way out of the debt is to print money.

  Asked whether QE is coming again, Moses says yes, 100%. He argues the only way out of the US debt burden is to print money and deal with the consequences later. He adds that Kevin Warsh is strongly against QE, though Warsh also wanted quantitative tightening, which Moses hasn't heard mentioned lately.

  “Believe QE is coming again... A 100%. Because only way out... You have to print your way out and deal with the consequences later.”at 41:20