Short Positions in US Stocks Hit Record High! AI Bubble Concerns Rise as 82% of Fund Managers Warn of Overheated Chip Stocks

Short positions in US stocks have climbed to a record high, indicating that more investors are questioning whether the massive capital expenditures companies are making to develop artificial intelligence (AI) will truly generate sufficient economic benefits.

According to a report by Business Insider, financial data firm S3 Partners stated that its tracked indicator for short positions in US stocks has set a new record. While short selling is a common hedging strategy even among bullish investors, the recent continuous increase in short positions also reflects market concerns about the overvaluation of US stocks and cracks emerging in the AI investment narrative.

Based on data compiled by S3 from hedge funds, asset management firms, and other financial institutions, the total short position in S&P 500 index component stocks currently accounts for approximately 3.7% of free-float shares, the highest level since S3 began tracking the data in 2010.

Goldman Sachs research indicates that prior to 2010, the peak short interest in S&P 500 stocks occurred during the 2008 financial crisis, with a median level of about 3.8%.

Notably, this surge in short positions coincides with a critical juncture in the nearly four-year-long bull market. Although major indices remain near all-time highs, market optimism surrounding AI themes has begun to crack.

Memory and semiconductor stocks, which saw the strongest gains this year, have both entered bear market territory this month. At the same time, investors are becoming increasingly cautious toward cloud computing giants that have spent hundreds of billions of dollars on AI infrastructure without a clear path to profitability.

In addition to the weakening AI narrative, macroeconomic uncertainties are also casting a shadow over the market. Tensions between the United States and Iran have not eased, and inflation trends remain unpredictable.

June’s Consumer Price Index (CPI) data briefly offered relief, but if geopolitical tensions escalate again, this easing trend may not last and could even force the Federal Reserve (Fed) to resume rate hikes this year.

Although institutional investors’ overall risk appetite has increased slightly over the past month, their stance toward semiconductor stocks has become increasingly cautious.

According to a July survey by Bank of America (BAC-US) of fund managers, a staggering 82% of respondents believe that global chip stocks are currently the most crowded trade in financial markets.

Additionally, nearly half of the surveyed fund managers consider the AI bubble to be the biggest tail risk in the market, up from 28% the previous month, indicating rising concerns about overheating in AI-related investments.

Nonetheless, Bank of America also noted that investors continue to increase their equity allocations, with US stock holdings rising to their highest level since December 2024.