Mergers, mergers everywhere, says the legendary investor

Steve Eisman pictured in 2019. The ‘Big Short” investor recently discussed his market views and the next big trade he sees coming on his podcast.

If you’re looking for that rare Wall Street bear these days, don’t expect to find it in a Wall Street legend who sounded the alarm over the global financial crisis seventeen years ago.

That’s because “Big Short” investor Steve Eisman is a big fan of U.S. technology, saying no other country’s stock market in the world can boast of such concentration by the sector. It’s the cornerstone of his upbeat view on stocks.

“I’m a big believer in the U.S. economy long term, and in that sense I’m very bullish,” Eisman said on his podcast, “The Real Eisman Playbook,” that published Tuesday.

Eisman is best known for making successful bets against the U.S. housing market just before the 2008 collapse and global financial crisis. He was then depicted by Steve Carell in the 2015 hit movie “The Big Short,” based on the book of the same name by Michael Lewis.

Before joining Neuberger Berman in 2014 — he was placed on indefinite leave from the company last September over a controversial social-media post regarding the Middle East and subsequently resigned — “all I did was financials,” but then began to “research the entire S&P with a very big emphasis on technology and industrials,” he said.

“I began to see how incredibly dynamic the industrial sector was, the technology sector was, and then with AI exploding you’ve got the need for more electricity. I mean it’s all just feeding upon itself,” said Eisman.

Investors may not consider that while the information technology sector is around 31% of the S&P 500, adding in companies like Amazon, Alphabet and Meta that are considered tech, but not technically in that sector, the percentage jumps to 50%, he said.

A year ago, Eisman said investors would be crazy to bet against companies like AI chipmaker Nvidia, whose shares endured a tough spring as the tech sector pulled back, but have resumed a climb higher.

Tech is where his biggest conviction trades lie, he said, and he owns Apple, Alphabet, Meta and Nvidia, though not Tesla. While that’s a consensus trade, he said he “doesn’t even lose a minute of sleep about it.”

He’s also anticipating another big trade — this time a mergers-and-acquisition wave coming to the U.S., and owns PJT Partners, a global advisory-focused investment bank as one play on that. Eisman said that wave has already started with the merger announcement between Union Pacific and Norfolk Southern last month.

“When you think about it, it is shocking, because during the Biden administration, they wouldn’t have even though about it,” said Eisman. “Somebody in the government must have given them a wink and a nod, because otherwise there’s no way they would have done this. So if that can go through, anything can go through.”

That M&A wave is also coming for regional banks, he said, adding “we definitely need larger banks to compete with JPMorgan and Bank of America.” He said Comerica should be sold because share prices are where they were in 1994.

“So, that actually has a very good footprint and should merge with somebody else, but for whatever reason, the people who run it don’t seem to be amenable,” he said.

As an “alternative play,” Eisman owns Apollo Global Management, which primarily invests in those assets. “I generally look for things that have real market power. So for example, I own Moody’s because it’s a duopoly right?”

That said, those types of trades don’t always last, he said, such as data analytics group Fair Isaac Corp., “which was a monopoly and now all of a sudden it’s maybe not going to be a monopoly, so the stock’s really corrected a lot,” he said.

Shares of Fair Issac have lost 28% this quarter following a decision last month by Freddie Mac and Fannie Mae to allow another measure for assessing mortgage borrowers, introducing competition to its credit score model.