Short Sellers Profit Big as AI-Linked Stocks Crash Amid Bubble Concerns

Short sellers made $5.6 billion in two days by betting against AI-linked companies like Meta, Nvidia, and Microsoft, as AI stocks dropped sharply due to investor concerns about the AI boom's sustainability. Meta, Nvidia, Microsoft, Apple, and Google lost 4%, 3.8%, 3%, 3%, and 1%, respectively, with short bets against these five giants earning short sellers over $2.8 billion in two days.

Short sellers have reaped significant profits by betting against AI-linked companies, with the market experiencing a sharp downturn in recent days. According to data from S3 Partners, short sellers made $5.6 billion in just two trading sessions by wagering against AI stocks [1].

The decline in AI stocks was driven by investor concerns about the sustainability of the AI boom. On Wednesday, the tech-heavy Nasdaq Composite fell by 0.7%, capping a two-day decline of 1.5%. Among the Magnificent Seven big tech stocks, Meta (META), Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), and Google (GOOG) lost 4%, 3.8%, 3%, 3%, and 1%, respectively, over the past five trading sessions. Short bets against these five giants alone led to $2.8 billion in profits for investors over the past two days [1].

The losses were even more pronounced outside the tech giants. Advanced Micro Devices (AMD) slid over 10% in the last week, while Broadcom (AVGO) and Micron (MU) each fell over 5%. AI data center operator CoreWeave (CRWV), seen as an AI "pure play," nosedived 24% in the same period [1].

Meta, which has made significant investments in AI, saw its stock fall despite the company's heavy spending on AI-related initiatives. Short sellers increased positions worth $4.7 billion over the past week, reaping $1.1 billion in profits in just two days [1]. Palantir (PLTR), which had surged more than 150% since April, has now fallen over 15% in its longest losing streak since March. Investors shorting Palantir have gained more than $1 billion [1].

The recent downturn has been fueled by shifting sentiment. On Monday, researchers for MIT’s Project NANDA released a report saying 95% of companies it studied are getting no return on AI. Additionally, OpenAI CEO Sam Altman indicated that the industry may be in a bubble reminiscent of the dot-com crash [1]. Despite the current pullback, AI bulls remain optimistic, with Wedbush’s Dan Ives describing the current pullback as temporary and predicting that AI will continue to drive markets higher [1].

For those looking to profit from the current AI stock valuations, inverse tech-based exchange-traded funds (ETFs) such as ProShares UltraPro Short QQQ (SQQQ), Direxion Daily Technology Bear 3X Shares (TECS), MicroSectors Solactive FANG & Innovation -3X Inverse Leveraged ETN (BERZ), and ProShares UltraShort QQQ (QID) have gained materially [1].

References:
[1] https://finance.yahoo.com/news/short-sellers-reap-over-5-billion-on-big-tech-bets-as-ai-fears-roil-market-100040412.html
[2] https://www.ainvest.com/news/nvidia-leads-trading-surge-23-61b-volume-outshining-tesla-meta-2508/
[3] https://www.nasdaq.com/articles/ai-fatigue-hits-tech-biggies-inverse-etfs-focus