MW What this famed short seller is waiting for before betting against AI stocks

By Barbara Kollmeyer

Carson Block is on the lookout for the AI 'pretenders'

Why it's too early to short the AI sector, according to Carson Block.

Tech is having a tough week, with fresh fears AI is going to devour software and now Alphabet's eye-popping capital spending plans to absorb.

Our call of the day, from the pioneer of activist short selling, Carson Block, says now is not the time to be shorting AI stocks. In a discussion with Jack Farley of the Monetary Matters podcast, the chief executive officer of investment-research firm Muddy Waters Capital, explained why he's not willing to go against the high-flying sector.

Finding companies to short isn't what investors are up against. "The problem is going to be timing this because with momentum so strong - these have all become momentum stocks - you get the timing wrong and you're just going to get your face ripped off," Block said.

But he said that might not be the case forever.

"Usually, the real leaders in a space will go public and then the wannabes are going to go public behind them, and so these are, in general, the ones that you should watch for," he said.

"I think you're much better off waiting until you're convinced that there's just been this crushing of demand for speculative companies by likely an oversupply of these speculative companies," he said.

That was the case in 2021 as a flood of SPAC listings and a supply of speculative stocks overwhelmed demand. The internet bubble of 2001 also was popped by too many new companies chasing the same pool of money, he said.

Until that time arrives, and it will, "you'd be playing a very, very dangerous game to try to short some of these names," said Block.

Carson said they published two short recommendations in the first half of last year - AppLovin (APP) and FTAI Aviation $(FTAI)$ - that didn't work out and then didn't try with any more. He said the lesson for him was that it wasn't the right time to short as investors wouldn't be willing to recognize risks in a company when the market is frothy.

Block discussed Muddy Waters diversifying into a quantitative momentum strategy that takes long positions on 20 S&P 500 SPX companies and rebalances monthly.

"Last year on a gross basis, I think that was up about 70%, I mean it's just stupid right? But it's fantastically easy money compared to activist short selling," he said, though added there can be lots of volatility on the downside.

The number one name, from Oct. 2024 to Sept. 2025, was Palantir (PLTR), and then Western Digital $(WDC)$, Micron $(MU)$ and Seagate $(STX)$ at times made it to the top.

"Maybe two months after that's when you got that headline about the memory shortage and the squeeze," Block said. "It's like a leading indicator of some of the rotations that are underway."

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are pointing to small gains for the Nasdaq and S&P 500. Silver (SI00) is under pressure, and gold (GC00) is softer. Bitcoin (BTCUSD) fell below $70,000.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6882.72    -1.37%  -0.55%  0.54%   13.55% 
   Nasdaq Composite                                                     22,904.58  -3.99%  -2.88%  -1.45%  16.31% 
   10-year Treasury                                                     4.274      3.40    9.80    10.20   -17.10 
   Gold                                                                 4948.9     -8.54%  10.79%  14.24%  71.53% 
   Oil                                                                  63.9       0.63%   13.30%  11.30%  -10.18% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Alphabet $(GOOGL)$ earnings and revenues beat forecasts, but its 2026 capex forecast was well above consensus. Shares are slipping.

Broadcom shares $(AVGO)$ are climbing on expectations the custom chip maker will benefit from Alphabet's spending boost.

Arm Holding's shares $(ARM)$ are dropping as investors were looking for bigger beats from the U.K. chip maker's results than it delivered.

Qualcomm $(QCOM)$ is down 10% after the chip designer's disappointing guidance.

December job openings jobs data will publish at 10 a.m.

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The chart

Bank of America U.S. economist Aditya Bhave said the One Big Beautiful Bill Act will cement "K-shaped" spending by favoring middle to higher-income households. His chart shows what they estimate to be $135 billion to $140 billion of consumer spending from that bill tilted to those households. He added that half of that stimulus might not get spent, as those households save more, and they'll likely use it to buy stocks over paying down debt.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   GOOGL   Alphabet 
   AMD     Advanced Micro Devices 
   PLTR    Palantir 
   MU      Micron 
   MSFT    Microsoft 
   TSM     Taiwan Semiconductor Manufacturing 
   INFY    Infosys 

Random reads

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Oregon theater cracks a joke, and then Amazon pulls "Melania" movie.

-Barbara Kollmeyer

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(END) Dow Jones Newswires

February 05, 2026 06:58 ET (11:58 GMT)

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