Why Carson Block Won’t Short AI Names Until the IPOs Begin & Muddy Waters’ Pivot to Long Resources Stocks & S&P 500 Momentum

Episode Summary

Executive Summary: Carson Block argued that today’s best short ideas are in AI-adjacent hype, but timing is critical because strong momentum can crush short sellers before fundamentals matter. He sees a future oversupply of speculative IPOs as the real bubble trigger, while remaining constructive on select long ideas in mining, Vietnam, and India where he thinks deep research still finds edge.

Main Topics: AI hype, momentum, and short-selling timing (Priority: 5/5): Block says AI is fertile ground for frauds and pretenders, especially in adjacent areas like quantum computing, semis, power, and data centers, but warns that shorting now is dangerous because speculative momentum remains powerful. What pops bubbles: oversupply of speculative assets (Priority: 5/5): He argues bubbles end less because of rates or valuation and more when too many speculative companies come to market, overwhelming demand and collapsing hype. AppLovin, Carvana, and activist short discipline (Priority: 4/5): Block discusses short theses where blue-sky narratives outran fundamentals, but notes that even strong reports can fail in frothy markets if momentum and index flows dominate. Muddy Waters’ diversification into longs and quant momentum (Priority: 4/5): He explains that Muddy Waters has broadened beyond activist shorts into a quantitative momentum strategy, which has generated strong returns and reflects market pragmatism. Mining as an alpha-rich long/short niche (Priority: 5/5): Block lays out why junior mining offers underappreciated edge due to low competition, complex data, and limited human capital, and highlights Snowline Gold as a long with takeover upside. Vietnam and India as geopolitical beneficiaries (Priority: 4/5): He is bullish on countries positioned between the U.S. and China, especially Vietnam and India, because of FDI relocation, demographics, and supply-chain reorientation. China fraud risk and market structure (Priority: 4/5): Block differentiates mainland A-shares, Hong Kong, and U.S.-listed Chinese ADRs, arguing the worst fraud risks are among U.S.-listed Chinese names and that macro/structural forces complicate shorting.

Key Arguments: AI is broadening speculative flows beyond model companies into semis, memory, power generation, quantum computing, and other AI-adjacent themes, creating room for pretenders. The biggest risk for short sellers is not identifying overhyped names but mistiming the trade in a momentum-driven market. Bubbles usually pop when the supply of speculative companies overwhelms demand, as in the internet bubble and the SPAC wave, not primarily because of the Fed or abstract valuation models. Hyperscalers like Microsoft, Google, Meta, Amazon, and Oracle are not the same as the dot-com era because their core cash-generating businesses can absorb AI missteps. Short reports can be right on fundamentals yet still lose in the market if index inclusion, momentum, and retail/institutional flows keep prices rising. Muddy Waters has diversified because being a pure activist short shop is too dependent on market regime; quant momentum provides a more reliable return stream in the current environment. Junior mining offers unusually strong alpha because few skilled investors operate there, data work is complex, and many operators are weak business managers. Snowline Gold stands out because its near-surface gold deposit, jurisdiction, and infrastructure create strong takeover optionality and economics. Vietnam benefits from FDI diversion away from China, while India offers both geopolitical positioning and a much larger, more dynamic public market. China-related fraud is most dangerous in U.S.-listed ADRs, where incentives to cheat are high and enforcement is weak; Hong Kong is also risky due to market structure and manipulation. For long-only investing, Block now thinks themes matter more than purely bottom-up discovery because undiscovered gems may stay undiscovered without a margin buyer.

Data Points: Muddy Waters quant momentum strategy return: about 70% gross last year - Block says the firm’s SP 500 long-only momentum strategy performed very strongly Muddy Waters net return last year: a little over 100% net - He says the resource fund delivered this on a delta-adjusted basis Resource fund average net exposure: 50-60 net long on average - Describing how the mining/resource fund was run last year AppLovin and F-Tie shorts timing: 2 new activist short names in first half of 2025 - Block says Muddy Waters published on these names early in the year but avoided new shorts in the second half Snowline Gold economics: AISC of $569/oz - Block cites very low all-in sustaining cost for the gold project Snowline Gold takeout thesis: 2x+ where it currently trades - He believes a major acquisition could happen at more than double the then-current price Snowline production timing: 2029 or 2030 - He notes the project is not meant to be a near-term producer Vietnam tariff shock: about 90% - He references the initial Liberation Day tariff level on Vietnam imports as a major volatility event S&P 500 momentum backtest in 2022: up 10-12% vs. S&P 500 down 18% - Block says the strategy’s back test outperformed in a bear year Carson Block/Pod interview timing: early February - He says Muddy Waters is likely to publish new activist short work by the end of February or March Mayfair Gold ownership: about 16% - He cites this as an example of concentrated ownership in the resource fund Robin Hood philanthropy contest ranking: #2 behind Bill Ackman - He says his long/short picks temporarily placed him near the top of the leaderboard Oclo thesis timeframe: small modular reactors are many years off - Used as an example of hype spillover into power and nuclear-adjacent names

Pivotal Quotes: "The problem isn't finding the short targets. The problem is going to be timing this." — Carson Block: He explains why AI and other hype sectors may be vulnerable, but not yet shortable "Generally, these hype cycles will end when there are just too many speculative, shitty companies that come to market." — Carson Block: His core explanation for what pops bubbles "I think fundamentals are not relevant to these, you know, to what's going on." — Carson Block: He says momentum and flows dominate current AI/speculative trading

Implications: Investors should be wary of hype-driven sectors and focus on timing, not just thesis quality. For now, speculative momentum may overpower shorts, while long opportunities may be better found in underfollowed, research-intensive niches like mining and select emerging markets.