Hedge funds are starting to hedge their AI bets, according to a recent report from Goldman Sachs. While it’s not a Big Short scenario, the smart money on Wall Street is beginning to take out some short positions on the AI trade, particularly focusing on companies caught up in the hype that may be overvalued.
The top five long bets for hedge funds remain Microsoft, Meta, Amazon, Alphabet, and Nvidia. However, Tesla continues to be a popular short bet, with nearly $33 billion in short positions against it. Hedge funds are now eyeing companies like Palantir, Oracle, Intel, and Qualcomm, which have high short interest amounts as a percentage of market cap.
For example, Bloom Energy has seen its share price surge over 300% this year but now has a short interest equivalent to 18% of its public float. CoreWeave, the only major AI cloud provider with sub-investment-grade bonds, has a short interest amounting to 12% of its public float. Meanwhile, Robinhood, whose stock has risen nearly 200% on the AI trading wave, has a short interest of 7%.
Overall, the median S&P 500 short interest as a percentage of market cap is at its highest level in five years, while short interest in the tech-heavy Nasdaq 100 and the Russell 2000 is also elevated. Despite the increase in short positions, the market saw a rally on Monday, with the S&P 500 climbing more than 1.5% and the Nasdaq Composite having its best day since May.
The rally was partly sparked by comments from New York Fed President John Williams, who highlighted labor weakness as a bigger concern than inflation. As a result, the odds of a December rate cut have surged to 81%, up from just 42% a week ago.
In conclusion, while hedge funds are taking cautionary steps to hedge their AI bets, the market remains resilient. The original article was first published on The Daily Upside, offering sharp analysis and perspective on finance, economics, and markets. For more insightful content, subscribe to their newsletter.
