Hedge funds amplified their short positions on AI-related stocks, including chipmakers and infrastructure firms, during July. This shift reflects investor concerns over valuations and revenue sustainability in the AI sector, despite some companies beating earnings expectations.
The increased shorting of AI stocks signals a potential shift in market sentiment, with investors scrutinizing valuations and revenue sustainability, which could impact the performance of key technology companies and broader market indices.
Hedge funds significantly increased their short bets on artificial intelligence-related stocks in July, according to a report from data platform Hazeltree. This shift reflects growing investor apprehension regarding the valuations and the long-term sustainability of the bumper revenues seen in the AI sector.
The report indicated that short positions were amplified for chipmaker Super Micro Computer, as well as AI infrastructure firms Coreweave and Nebius Group. All three were among the top 10 most shorted stocks for Hazeltree's hedge fund clients in July, with their short positioning increasing from the previous month.
Concerns over the AI trade led to a broader market downturn, with US chip stocks experiencing a 20% drop and South Korea's tech-heavy Kospi index falling 22% in July. Both indexes saw their largest monthly declines since 2008.
Hazeltree also noted that hedge funds reduced their long positions and raised short positioning in chip giant Nvidia, although aggregate positions in the company remained long. The report highlighted that while Wall Street took profits in some of the year's leading AI infrastructure winners, capital was redeployed into companies demonstrating monetization capabilities, rather than an outright exit from AI exposure.