Saturday, July 13, 2024

Steve Eisman: 4 themes make infrastructure a better investment than AI

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Steve Eisman.
Hector Retamal/AFP via Getty Images

  • Famed “Big Short” investor Steve Eisman is bullish on infrastructure for four main reasons, he said on the Odd Lots podcast.
  • AI, electric grid investing, industrial onshoring, and green energy will all boost the sector.
  • They include AI, electric grid investing, industrial onshoring, and green energy.
  • Eisman sees infrastructure as a better bet than AI, which he says is concentrated in just a few elite firms.

2008’s housing crash might be long over, but Steve Eisman is not done looking for the next big macro trade. 

The investor — famous for his subprime mortgage bet, as documented in “The Big Short” — is now eyeing infrastructure as biggest winner of today’s conditions.

Speaking on the Odd Lots podcast, Eisman — senior portfolio manager at Neuberger Berman — outlined his bullish case for why infrastructure looks like a winning sector, and will be a strong long-term investment due to four main factors. 

“For the first time since I can remember, this whole group now has a real secular story. Not that they’re not cyclical. They are cyclical, but they have secular tailwinds that they’ve never really had before,” he said. “And those tail winds are gonna last quite a long time.”

Among the four drivers is a post-COVID push towards onshoring, as global economies disentangle with one another. Supply-chain issues during the pandemic were a lesson learned for domestic firms, he said, now incentivizing some production to return to the US.

This theme is just starting as new factories crop up, but will be a decade-long development, he said.

Though he doesn’t own it, Eisman noted that Eaton is an example of a firm benefiting from this trend. The company manufactures vehicle, electrical, and aerospace products, and has climbed 38% year-to-date.

A second tailwind will come from the industrial implications of artificial intelligence. That’s because the new microchip technology that runs AI requires three times more electricity than a CPU. According to JPMorgan, AI could spark tenfold growth in power demand by 2026.

These new GPUs are also much hotter than traditional hardware, data centers require much better cooling systems, Eisman added. That will boost electric grid improvements and spending.

“The estimates of improving the grid in the United States — everybody’s got a different estimate, but it’s like $200 billion, $300 billion — I mean, it’s unbelievable numbers,” told Odd Lots in June, touting the utility stocks Quanta Services as a big utility benefactor. Its shares are up over 22% since 2024’s start.

Finally, a greenification infrastructure revamp towards renewable standards will remain an entrenched tailwind for the sector. But Eisman isn’t all-in on any green energy; for instance, he cited that the fundamentals for residential solar are too poor to speculate over.

“You take all four of those boxes, and you turbocharge them by the fact that the United States has not had an industrial policy in anyone’s lifetime,” Eisman said. “And it has one now: the combination of the IRA and the IIJA adds up to about $1.2 trillion over 10 years.”

Meanwhile, his bullishness on AI is limited to the obvious winners, which are chiefly a small group of the biggest companies. At this point, however, it’s impossible to speculate which AI application firms will come out on top, though Apple could be among the bigger beneficiaries.

“Everything else at this point seems to me to be hype, or potential and we don’t own those companies. We own what’s obvious,” he said.

While Eisman believes in AI and infrastructure, he has no faith in crypto’s potential, he said. To him, the digital asset can’t be considered a hedge security, as its movement doesn’t benefit from rising inflation fears or market downturns. Instead, it’s no more than a purely speculative market, he said.

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