AI Terminator Fears Grow & Rates Breach 4.9% | The Weekly Wrap

SUMMARY

Steve Eisman provides a comprehensive analysis of the week’s major financial events, including the surge in the 10-year Treasury yield, heightened concerns about artificial intelligence, and key earnings reports from Oracle, Macy’s, and GameStop. He also addresses the ongoing debate over AI risks, the dynamics of the semiconductor industry, and the shifting landscape in credit scoring and gold investment.

MAIN POINTS

• The 10-year Treasury yield breaches 4.9% amid rising oil prices linked to the ongoing Iran conflict, raising concerns about the impact of higher rates on the economy and markets. [3:01]
• A former Anthropic researcher warns of AI-driven human extinction, prompting skepticism about the likelihood of artificial general intelligence and comparisons to science fiction predictions. [7:02]
• Tesla’s robotaxi event disappoints investors, leading to a 6% drop in the stock and renewed doubts about the company’s high valuation and future earnings potential. [9:00]
• Debate intensifies over Nvidia’s dominant position in AI hardware, with discussion of its high margins, the potential commoditization of AI compute, and the risk of ecosystem fragility if major AI labs falter. [14:01]
• Oracle reports strong revenue and earnings growth but faces market skepticism due to heavy reliance on OpenAI, while Bill Pulte renews criticism of FICO’s pricing and Macy’s and GameStop post mixed results. [18:01]
• A subscriber question highlights gold’s resilience despite rising Treasury yields, with Eisman noting gold’s role as an inflation hedge and expressing a personal preference for Treasuries over gold. [21:00]

DETAILED ANALYSIS

The week saw significant volatility in the bond market as the 10-year Treasury yield surged past 4.9%, a level not seen since November 2023. This move was driven by geopolitical tensions, particularly the ongoing conflict involving Iran, which pushed oil prices above $100 per barrel. The rise in long-term rates is viewed as a negative for the broader economy, with uncertainty about how much higher yields equity markets can withstand.

Treasury Secretary Scott Bessent’s attempts to lower rates by purchasing long-term Treasuries, initially allocating $4 billion and later increasing it to $6 billion, failed to impress markets or halt the upward momentum in yields. The scale of intervention was deemed insufficient given the $40 trillion federal debt, and Bessent’s participation in a partisan political event broke longstanding norms, potentially undermining his credibility at a critical moment.

Attention then shifted to the growing debate over artificial intelligence risks. A former Anthropic researcher’s warning that AI could pose an existential threat to humanity by the end of the decade was met with skepticism. There remains little evidence that AI is close to achieving artificial general intelligence (AGI), and some experts, such as Gary Marcus, argue that current systems are far from this milestone.

Eisman draws parallels to science fiction, noting that while speculative fiction can sometimes anticipate technological trends, it also fuels exaggerated fears. The discussion highlights the need for trustworthy AI systems that avoid hallucinations rather than focusing on hypothetical doomsday scenarios.

Tesla’s much-anticipated robotaxi announcement failed to deliver new breakthroughs, resulting in a 6% decline in the company’s stock price. The market’s high expectations for Tesla’s autonomous vehicle business underpin its lofty valuation, with a projected 2026 price-to-earnings ratio of 220 compared to traditional automakers like GM at 6.5. Despite declining earnings since 2022, Tesla’s stock has remained resilient, illustrating the challenges of shorting companies with strong investor followings.

The episode underscores the disconnect between fundamentals and market sentiment in so-called “cult stocks.”

The semiconductor and AI hardware landscape was another focal point, with Nvidia’s extraordinary gross margins—reported at 74%—sparking debate about its role in the AI ecosystem. Some argue that Nvidia’s profits are being used to support emerging competitors and that hyperscalers are seeking alternatives by developing their own chips. The commoditization of AI compute could eventually erode Nvidia’s dominance, but the current ecosystem remains heavily reliant on Anthropic and OpenAI.

A failure of either could trigger a market correction reminiscent of the dot-com bust, as the industry transitions from first-generation to more sustainable business models.

In corporate earnings, Oracle posted impressive 30% growth in both revenue and non-GAAP earnings per share, though concerns linger about its dependence on OpenAI, which accounts for half of its backlog. Bill Pulte, head of the FHFA, renewed his criticism of FICO and the credit bureaus for excessive price increases, and the expansion of Vantage Score access threatens FICO’s longstanding monopoly. Macy’s reported a solid quarter, particularly at its Bloomingdale’s division, but issued cautious forward guidance, while GameStop’s shift toward collectibles has stabilized profits even as overall revenue declines.

Both retailers reflect broader trends of transformation and waning investor interest.

Finally, a subscriber inquiry about gold’s performance in the face of rising Treasury yields prompted a discussion of gold’s unique role as an inflation hedge and store of value. While higher yields typically make Treasuries more attractive, ongoing inflation fears and concerns about government debt have supported gold prices. Eisman personally favors Treasuries over gold, viewing the government’s fiscal position as stretched but not yet critical.

LINKS

• The Real Eisman Playbook Premium subscription page.
• Steve Eisman's Financial Literacy Masterclass video.
• Steve Eisman's Masterclass on the 2008 Financial Crisis.
• YouTube subscription link for The Real Eisman Playbook.
• Central hub for Steve Eisman's social links and updates.
• Granola AI-powered notepad, promoted by Steve Eisman.

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