Hedge funds upped short AI bets in July, Hazeltree says

• Super Micro Computer, Coreweave, and Nebius Group were all in the top 10 most shorted stocks in July among Hazeltree's 700+ hedge fund clients, with short positions growing from June levels
• The AI stock selloff was driven by investor concerns about valuations and sustainability of chipmaker revenues, resulting in historic monthly losses for major chip indexes
• Hazeltree noted funds are 'redeploying capital into companies that have shown signs of monetization' rather than abandoning AI exposure entirely, trimming leveraged positions while maintaining core holdings

Summary

Hedge funds significantly increased short positions on AI-related stocks in July 2024, according to data platform Hazeltree, signaling a strategic shift in positioning rather than complete abandonment of the AI trade.

Key Developments:

Hedge funds expanded short bets—wagers that stock prices will decline—on chipmaker Super Micro Computer and AI infrastructure firms Coreweave and Nebius Group. All three companies ranked among the top 10 most shorted stocks in July across Hazeltree's 700+ hedge fund clients, with short positions growing from June levels.

Funds also reduced long positions and increased shorts in chip giant Nvidia, though aggregate positioning remained net long on the stock.

Market Impact:

July witnessed significant turbulence in semiconductor and AI markets amid valuation concerns and questions about revenue sustainability. U.S. chip stocks plummeted 20%, while South Korea's tech-heavy Kospi index dropped 22%—both registering their largest monthly declines since 2008.

Strategic Repositioning:

According to Hazeltree, investors are taking profits from AI infrastructure winners while redeploying capital into companies demonstrating clearer monetization. The firm characterized this as a "similar unwind" in leveraged semiconductor bets, with investors reducing borrowed risk rather than exiting AI exposure entirely.

Notably, Coreweave exceeded second-quarter revenue estimates despite elevated short interest. High short positioning can potentially fuel dramatic upward price movements if stocks rally.

Bottom Line:

The increase in short positions reflects tactical profit-taking and de-risking rather than bearish conviction on AI's long-term prospects, as Wall Street repositions toward fundamentally stronger opportunities within the sector.