Short interest in S&P 500 stocks hit a record 3.7% of free float, S3 Partners says. Fund managers flagged AI as the biggest tail risk, BofA survey shows.
Short sellers have built the largest collective bet against US stocks since at least 2010, according to data from S3 Partners. The financial data firm said short interest in S&P 500 stocks now stands at 3.7% of the index's free float, the highest reading since it began tracking the metric.
Goldman Sachs analysts noted that before 2010, short interest in the median S&P 500 stock peaked around 3.8% of market capitalisation in 2008, during the financial crisis. The current level is close to that mark, though the composition of the shorts differs.
S3's data, aggregated from hedge funds, asset managers and brokerages, shows the shorting has been concentrated in technology and semiconductor names. Memory-chip stocks, a favourite AI trade, have stumbled into bear-market territory this month. The S3 report attributed the move to growing doubts about the economics of the massive capital spending on artificial intelligence.
A Bank of America survey of fund managers in July found that 82% of respondents considered global chip stocks the most crowded trade in financial markets. Almost half of the managers surveyed said they view the AI bubble as the single biggest tail risk, up from 28% in June. Yet the same survey showed that equity allocations rose to their highest level since December 2024, suggesting the short positioning is not a broad market call.
Broader macro concerns are also weighing on sentiment. Trade tensions between the US and Iran remain elevated, and the path of inflation is uncertain. A reprieve in June CPI data could prove temporary if the conflict reignites, potentially pushing the Federal Reserve to raise rates this year, traders said.
Among financial stocks, the picture is mixed. Bank of America (BAC, Alpha Score 67/100, Moderate) and Goldman Sachs (GS, Alpha Score 45/100, Mixed) have seen divergent positioning, with BAC showing more resilience in its Alpha metrics. The sector overall is not a primary target of the current short campaign, S3 data indicated.
For a broader view of market sentiment, see the stock market analysis. For individual stock profiles, visit the BAC stock page and GS stock page.
The Bank of America survey concluded that while fund managers are wary of the AI trade, they are not reducing overall equity exposure. The disconnect between record short interest on one side and rising allocations on the other suggests the shorts are concentrated in specific names rather than reflecting a bearish macro call.
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