Overseas hedge funds: The AI speculation frenzy is nearing its end; heavy positions in uranium, copper, and other commodities are being used to hedge bubble risks.

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As the AI boom pushes U.S. stocks to historic highs, an overseas hedge fund is preparing for potential "huge risks." Selwood Asset Management believes that the current AI-driven speculative frenzy is approaching its peak and a swift collapse may be imminent. The fund is adjusting its portfolio to guard against possible chain reactions.

Reportedly, the fund's Chief Investment Officer for Equities, Karim Moussalem, warned in an interview on Thursday that trading in the AI sector is "starting to resemble a major speculative mania from market history." In a LinkedIn post, he stated:

"To me, it is undeniable that we are in a bubble that is completely driven by retail investors."

Moussalem believes that the energy costs AI relies on are becoming its biggest weakness. The market is currently blinded by "momentum and narrative," overlooking the potential risks faced by AI giants in terms of capital expenditure, profitability, and valuations. He is particularly concerned that soaring energy prices may limit AI's expansion capacity and eventually burst the bubble.

Therefore, Selwood Asset Management's strategy is not to short the highly volatile tech stocks directly, but to shift towards bullishness on energy-related commodities. Moussalem believes that, in the current environment, the energy sector is “an excellent destination,” and he has taken long positions in commodities such as uranium and copper, betting that they will benefit from AI's massive energy demand.

Valuation Bubble and Inflated Profits

One of Moussalem's core concerns is that the profits of AI-related companies may be seriously exaggerated. He believes that tech giants have problematic depreciation methods for capital expenditure in the AI field.

“Nvidia releases new chips every year,” he explained, “but those hyperscale cloud service providers depreciate their capital expenditures over six to eight years. You might wonder if that's overly optimistic and generous.” Moussalem thinks that if these capital expenditures were depreciated in a more realistic one to two years, “all of these companies' profits might be highly overestimated.”

This bubble trend is not limited to top companies like Nvidia. Moussalem mentioned that a basket of U.S. stocks composed of the least profitable companies has surged 120% since the low point in April:

"Nvidia isn't necessarily the only symbol of the bubble. In my opinion, you can see signs of pure bubble territory in many other places."

Moussalem believes that the "single grand narrative" supporting the sustained rise of the S&P 500 index—the AI revolution—may be very fragile. He thinks that two main factors could rapidly challenge this narrative: one is the sudden intensification of regulatory scrutiny over tech giants’ market share; the other is a drastic rise in energy prices due to the power grid’s inability to meet demand.

He warns that AI’s energy-intensive nature is presenting it with severe challenges. "Those (energy) prices are rising parabolically, just like the proliferation of AI," Moussalem said. He believes that the race for AI “hyperscale data centers” is “a game that nobody wants to lose,” but ever-rising electricity costs may severely hinder its scalability, putting pressure on corporate earnings and valuations.

An Alternative Strategy to Hedge AI Risk

Based on his judgment about the AI bubble and the energy bottleneck, Moussalem is actively positioning in the energy market. He is especially bullish on uranium and has already taken long positions. He believes that, at a “very reasonable” valuation, uranium gives investors direct exposure to the AI thematic trade.

The logic is that data centers powering AI are increasingly reliant on stable, reliable, high-capacity energy supply, bringing uranium for nuclear power back into market focus:

"When you look at the supply and demand situation in the uranium market, you’ll find a huge gap is approaching."

Meanwhile, he also acknowledges that shorting those overvalued tech stocks is extremely tricky, partly due to retail investor enthusiasm and market memories of the 2021 'meme stock' frenzy, making going long on energy-related assets a more robust hedging strategy.

Moussalem's concerns have found some resonance in the market. Veteran investor Leon Cooperman said earlier this week that the market is in the late stage of a bull run, and bubbles typically form in this phase. He added that current investor sentiment is quite similar to previous bubble eras, and AI company valuations are “outrageously high.”

In addition, Georges Debbas, Head of EU Equity Derivatives at BNP Paribas, also expressed caution. He believes that as 2026 approaches, questions around the AI theme will multiply, especially for companies with huge investments in the field but low returns, which may face downside risk. Debbas said:

"The underlying structure of the market has changed dramatically, and from a fundamental perspective, holding protective positions makes a lot of sense."

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