Steve Eisman, the investor best known for flagging the hidden fault lines in the US mortgage market over a decade ago, is now watching a different corner of the market with growing unease
In a new CNBC interview, Steve Eisman, who is known for nailing the 2008 housing market collapse, says he’s keeping a close watch on the emerging split inside the AI research community and why it matters for markets powering the boom.
He cites an argument presented by NYU professor Gary Marcus, who said that large language models (LLMs) will lose their efficacy as they scale, meaning the improvement will slow instead of increase. Eisman notes that Marcus’s view goes against the claims presented by OpenAI CEO Sam Altman and Anthropic’s Dario Amodei.
“Then ChatGPT 5 comes out, and the immediate reaction by all these people who know a hell of a lot more than me is that the improvement in ChatGPT-5 is a hell of a lot less over 4.0 than 4.0 over 3… All of a sudden, Gary Marcus is not the lone wolf anymore. There was an interview maybe two weeks ago with Ilya Sutskever, who was one of the founders of OpenAI… He comes out, and he says exactly the same thing: that scaling LLM models is a dead end and that we have to return to basic research. And then a lot of other people are starting to say the same thing.”
The “Big Short” investor warns that if the argument on scaling laws is correct, the AI trade could collapse, dragging the entire market down with it.
“But if this argument, the Gary Marcus argument, is right, you’re going to start to see more and more people start to say this. And then at some point, companies like Microsoft, if this becomes true, they’re going to start buying fewer chips. This is the foundational argument that everybody should be focused on all the time. It’s like the foundational argument before the great financial crisis, where I eventually figured out that the entire mortgage fixed-income market rested on one assumption, which was that housing prices can’t go down. And once that assumption was pulled out, the whole edifice collapsed…
I’m not doing anything. I’m not selling anything. But this argument makes me nervous. And I pay attention to it every day.”
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