AI bubble fears heat up, US stock short bets hit highest since 2010

Odaily Planet Daily News: As concerns over risks related to artificial intelligence intensify, bearish bets against the US stock market are climbing to record highs, reflecting investor skepticism about the sustainability of the current rally.

Data shows that short interest in S&P 500 index components as a percentage of free float has approached 3.79%, the highest level since S3 Partners began tracking it in 2010. Meanwhile, the short interest ratio for Russell 3000 index components recently rose to 6.3%, also a new record.

Previously, the S&P 500 has gained about 18% since late March, propelling the market higher. However, some investors are beginning to worry about the sustainability of the AI-driven tech rally and the risk of a correction amid high valuations.

Analysts point out that the significant increase in short positions not only reflects investor concerns about AI bubble risks, earnings expectations, and market concentration but could also serve as a key signal of heightened market volatility.

However, historical data shows that high short interest levels do not necessarily indicate an imminent market decline. If corporate earnings continue to improve or AI investments deliver better-than-expected returns, short covering could in turn drive stocks even higher. (Bloomberg)