Steve Eisman, known for his role in shorting the 2008 housing market, recently sold his long-held Google shares to reduce his exposure to artificial intelligence stocks. The decision was conscious and timely: Alphabet hit its all-time high around $408.61 in mid-May but has since fallen roughly 20%, closing at approximately $319.74 by late July.

On CNBC’s Squawk Box, Eisman explained his move, emphasizing that the market now revolves around one dominant trade: AI. His takeaway is stark. Investors either get into AI stocks or avoid the market completely, leaving no space for traditional defensive stocks. "People either want to buy AI or they don’t want to buy AI, but they don’t want to shift out of it to buy Clorox," Eisman said, highlighting the lack of alternatives in investors’ minds.

Since selling Google, Eisman has stayed in cash, with no immediate plans to reinvest. He cautioned that the debate over AI’s impact on markets will linger beyond the next couple of weeks, making it difficult to time a new entry.

Market Concentration in AI Raises Diversification Concerns

Eisman’s main concern is not about valuation but about the extreme concentration in AI-related assets. He argues that even portfolios claiming diversification are heavily skewed, with over half their holdings tied to tech and AI sectors. He pointed out that around 60% of many portfolios are stocks, of which more than 50% relate to tech and AI, and much of the bond issuance is also tech-driven.

Data tends to support Eisman’s view on stock concentration. Information Technology and Communication Services combined made up about 46.5% of the S&P 500 in late July. Including AI-adjacent giants like Amazon and Tesla pushes that figure over 50%. However, his claim about bond issuance is less precise. According to the Securities Industry and Financial Markets Association, high technology represented just 14.2% of US corporate bond issuance in Q2, lagging behind Financials at 46.4%. Still, the Bank of England recently highlighted that AI-linked hyperscalers, though holding only 3% of outstanding US investment-grade debt, accounted for over 15% of this year’s issuance by early May.

Such concentration suggests risk is piling up unseen, with many investors unknowingly betting heavily on the same AI theme. Eisman’s position reflects caution in a market that some see as overcommitted to a single narrative.

BTIG’s warning of a downturn in AI stocks echoes Eisman’s concerns about the fragility in this heavily focused segment.

This piece is informational and does not constitute financial advice.