Muddy Waters CEO: Now is not a good time to short large tech stocks.

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Nvidia's third-quarter results far exceeded expectations, instantly silencing the aggressive short-sellers.

Carson Block, CEO of the well-known short-selling firm Muddy Waters, stated that despite the market's increasing warnings about a potential AI bubble, now is not the right time to short the largest US tech companies. In an interview with Bloomberg TV on Thursday local time, he gave a clear warning to investors that shorting large tech stocks such as Nvidia carries enormous risk.

Block admitted that, in the current market environment, he would "rather go long than short." The investor, famous for his aggressive short-selling strategies, pointed out that any investors attempting to short Nvidia or other large tech stocks "won't last long in this industry."

Recently, US stocks have experienced turbulence as investors worry about tech stocks being overheated; top executives at Goldman Sachs and JPMorgan have said the market may face further declines. Nevertheless, Nvidia's strong revenue forecast and rebuttal of bubble claims on Wednesday eased some market concerns, driving Nvidia’s after-hours stock up over 6%, and the tech-heavy Nasdaq 100 futures rose 1.5% on Thursday.

Passive Investing Impacts Price Discovery Mechanism

Block believes the boom in passive trading has "to a large extent weakened the price discovery function and damaged market mechanisms." He explained that funds tracking the S&P 500 index will buy stocks like Nvidia at any price as long as there is capital inflow, without considering valuation.

"It doesn’t matter how expensive Nvidia becomes," Block said. "All these S&P 500 index funds will only sell Nvidia if there is a net outflow; as long as there is capital inflow, no matter the price, they will buy every day."

This view highlights the profound impact of passive investment strategies on the price formation mechanism of individual stocks, especially for heavyweight tech giants.

Small AI Firms Become Potential Short Targets

Although cautious toward large tech stocks, Block revealed that he is monitoring some smaller AI-related companies as potential short targets, mainly those riding the AI hype. He calls these companies "AI-adjacent companies" or "AI imposters."

"You can focus on all these AI-adjacent companies, AI imposters—that's where you want to short," Block said. "However, as long as leaders like Nvidia are still rising, that's a very dangerous trade."

Risk Warning and DisclaimerThe market carries risk; investment requires caution. This article does not constitute personal investment advice, nor does it take into account any individual user's specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their own circumstances. Investing accordingly is at your own risk. ```