Paul Singer is not afraid to play contrarian. The billionaire investor is known for his activist positions and even took on the Argentinian government for 15 years until it made debt payments on government bonds, resulting in billions for Singer's fund Elliott Investment Management.
Singer, who's reportedly worth $6.2 billion, according to Forbes, founded Elliott in 1977 and has grown it to $65 billion in assets under management. Now, the 80-year-old is raising the red flag on the broader market and some of the high-flying artificial intelligence (AI) stocks that have fueled the bull run such as Nvidia (NVDA 2.94%). Instead, Elliott has tripled its position in a stock that Wall Street thinks can soar 115% from current levels (as of Feb. 27).
"AI is way over its skis"
In the fourth quarter of 2024, Elliott Investment Management purchased 1.45 million shares worth of put options in the AI king Nvidia. Put options are a bet that a stock will go down. The positioning somewhat aligns with recent comments made by Singer in a rare public interview: "This AI is way over its skis in terms of practical value being brought to users...There are uses, and there will be additional uses, but it's way exaggerated."
Singer also opined that the stock markets "are just about as risky as I have ever seen," citing increasing leverage and risk-taking including among various governments, which implemented negative interest rate and zero interest rate policies for years. Singer certainly isn't alone in citing risks in AI and the broader market, as both have more or less become battleground areas for stocks. It still appears that the majority of investors, pundits, and analysts are bullish, but more negative sentiment is piling up as some investors appear to be simply waiting for the other shoe to drop.
NASDAQ: NVDA
Key Data Points
Nvidia recently reported strong earnings and forward guidance ahead of analyst expectations, but it failed to impress investors, as it can be difficult to impress when the market expects it regularly. There are also broader concerns looming over the AI space including the Trump administration's potential export controls over chips and the emergence of China's DeepSeek. DeepSeek, in particular, has raised questions over whether large tech companies need to spend tens of billions on capital expenditures or even use next-generation chips to create AI solutions.
A bet on crypto
While betting against AI, Singer appears to have embraced crypto and Bitcoin (BTC 1.18%), the world's largest cryptocurrency. In the fourth quarter, Elliott Management tripled its investment in the Bitcoin treasury company Strategy (MSTR 4.46%), increasing its stake from 5 million to 15 million shares. Founded by Michael Saylor, Strategy (formerly MicroStrategy) uses the capital markets to purchase massive amounts of Bitcoin, and now owns roughly 2% of all outstanding Bitcoin.
Interestingly, Singer also commented on crypto and how the Trump administration has embraced the sector:
Countries around the world aren't happy with the privilege that the U.S. government asserts as the reserve country in the world. They'd like alternatives. The dollar sits there, astride the world with all the abuses of that astride-ness. And the U.S., itself, is conjuring or supporting an alternative to the dollar? It makes my head spin.
Still, a popular trade in the fourth quarter was to bet on crypto before the election. If Elliott purchased Strategy prior to the election and then sold not too long after, the fund likely did quite well -- Strategy has given back most of its gains since then. Singer isn't the only one bullish on the company.
NASDAQ: MSTR
Key Data Points
Of the 11 Wall Street analysts who have issued research reports on Strategy over the last three months, all recommend buying the stock with an average price target that implies roughly 115% upside from current levels (as of Feb. 27), according to TipRanks. Earlier this month, analysts at KBW initiated coverage on Strategy with an outperform rating, saying investors are drawn to the levered Bitcoin play, which will benefit from continued value-adding Bitcoin purchases, fueled by "highly demanded security issuances and a valuation that exceeds net asset value."
Remember, Strategy's levered approach means investors will reap more gains when Bitcoin rises and also likely take heavier losses to the downside when Bitcoin struggles. That's why I typically recommend portfolio diversification to minimize the impact of heavy losses.
