Key facts
- Short interest in US stocks has reached record levels, according to S3 Partners.
- Short interest in the S&P 500 is at its highest point since 2010.
- Memory and semiconductor stocks have entered a bear market.
- Concerns about AI hyperscalers' spending and monetization are growing.
- Macroeconomic factors like US-Iran tensions and inflation are contributing to market caution.
Short sellers have placed record bets against the US stock market, according to a new analysis from S3 Partners. The financial data firm's measure of short interest in US stocks has hit record levels, reflecting concerns about high valuations and potential cracks in the AI narrative.
Short interest in all S&P 500 stocks is approximately 3.7% of the index's free float, the highest volume since S3 began tracking the data in 2010. This surge occurs as major indexes hover near record highs, despite doubts about the AI bull case. Memory and semiconductor stocks, previously strong performers amid the AI frenzy, have recently entered a bear market. Investors are also wary of AI hyperscalers spending heavily without a clear path to monetization.
Broader macroeconomic concerns, including US-Iran tensions and the trajectory of inflation, are also casting a shadow. A reprieve in June CPI data could be temporary if conflicts reignite, potentially leading the Federal Reserve to raise interest rates.
Institutional investors have grown more bullish overall in the past month, but are increasingly cautious about the semiconductor trade. A Bank of America survey found 82% of fund managers believe global chip stocks are the most crowded trade. Almost half of surveyed managers also identified the AI bubble as the market's biggest tail risk, up from 28% the previous month. Despite these concerns, investor allocation to US equities rose to its highest level since December 2024.