Hedge funds raise short AI bets as chip stocks tumble 20%

Hedge funds raised short bets on AI-related stocks in July, data platform Hazeltree said, as U.S. chip shares fell 20 percent and Korea's KOSPI dropped 22 percent — both indexes' biggest monthly decline since 2008.

"Wall Street took profits in some of the year's biggest AI infrastructure winners without abandoning the trade altogether, instead redeploying capital into companies that have shown signs of monetisation," Hazeltree said in its monthly report. "A similar unwind played out in leveraged semiconductor bets, with investors trimming borrowed risk rather than exiting AI exposure entirely."

Short positions — bets that a price will fall — increased in chipmaker Super Micro Computer, as well as AI infrastructure firms Coreweave and Nebius Group. All three ranked among the top 10 most shorted stocks in July across Hazeltree's hedge fund client base of more than 700 funds. Each had also appeared in the top 10 in June, but short positioning grew further in July.

Hedge funds also reduced long positions and raised short positioning in Nvidia, though funds in aggregate remained long on the chip giant, Hazeltree said.

The positioning shift came as investors questioned valuations and the sustainability of bumper AI revenues. U.S. chip stocks tracked by the Philadelphia Semiconductor Index fell 20 percent in July, while Korea's tech-heavy KOSPI dropped 22 percent — the steepest monthly declines for both since the 2008 financial crisis.

The selloff marked a sharp reversal for a sector that had been the primary driver of global equity gains for more than a year. AI infrastructure companies have commanded premium valuations on expectations of sustained hyperscaler spending, but July's decline reflected growing concern that revenue growth may not keep pace with the massive capital expenditures required to build out data centers and computing capacity.

Super Micro Computer, a maker of AI servers and storage systems, has been among the most volatile names in the AI trade, with its shares swinging sharply on demand signals from cloud providers. Coreweave, a cloud computing company that has raised billions in debt to fund GPU capacity, represents the leveraged end of the AI infrastructure spectrum. Nebius, the Amsterdam-based AI infrastructure firm that emerged from Yandex's restructuring, has been building out GPU cloud services across Europe and North America.

The pattern of rising short interest across multiple AI infrastructure names suggests hedge funds are hedging against a potential slowdown in AI spending rather than making a directional bet against the entire sector. By increasing shorts in Super Micro, Coreweave, and Nebius while maintaining net long positions in Nvidia, funds appear to be expressing a preference for established leaders over higher-risk infrastructure plays.

Coreweave shares jumped in extended trading Tuesday after the company beat second-quarter estimates, highlighting how elevated short interest can fuel sharp rallies — a so-called short squeeze — when positive news forces bearish investors to buy back shares at a loss.

The data points to a broader recalibration of the AI trade. While hedge funds have not abandoned the sector, the rotation toward companies with clearer monetization paths and the trimming of leveraged semiconductor exposure suggest a more selective approach to AI infrastructure names as the sector's valuation debate intensifies.

For investors, the rising short interest in AI infrastructure names carries two-sided risk. A continued selloff would validate bearish positioning, but any positive earnings surprise — such as Coreweave's beat — could trigger outsized rallies in heavily shorted stocks. The next test for the sector comes as more AI infrastructure companies report quarterly results in the coming weeks.

This article is for informational purposes only and does not constitute investment advice.