Data shows that short-selling levels in the US stock market have risen to a five-year high, but funds are not recklessly challenging AI giants; instead, they are seeking out "pseudo-beneficiaries" that have been buoyed by AI concepts but lack core competitiveness.

Source: Jinshi Data

Currently, the sentiment in the US stock market is slightly tense, with a surge in Oracle's credit default swap (CDS) trading volume, and even AI industry insiders admit that there are some "signs of a bubble" in the market. Against this backdrop, discussions about when, where, and how to short-sell are increasing.

Goldman Sachs' latest hedge fund positioning report contains many interesting details. The report indicates that so-called "smart money" is not yet ready to short-sell AI giants on a large scale, but some funds have begun to focus on weaker companies in this wave.

First, after experiencing such a strong rally, the median short-selling ratio of S&P 500 constituents remains surprisingly high. Calculated by total market capitalization, it stands at 2.4%, in the 99th percentile of short-selling levels over the past five years, and well above the long-term average since 1995.

As early as May, signs of renewed short-selling interest began to emerge, and since then, the short-selling ratio has continued to rise, maintaining high levels even after experiencing two small but painful "short squeezes" in July and mid-October.

Additionally, it is worth mentioning that the short-selling ratio of the tech-heavy Nasdaq 100 index is slightly higher at 2.5%. The sector with the largest increase in short-selling is small-cap stocks, with the median short-selling ratio of Russell 2000 constituents currently reaching 5.5%.

However, Goldman Sachs pointed out in the report that the most notable development is the surge in the short-selling ratio of the utility sector, which increased by 0.3 percentage points to 3.2%. While this may not sound surprising, Goldman stated that this is one of the highest levels ever recorded.

This is likely related to the AI bubble. After all, the data centers required to drive AI models consume enormous amounts of energy, making the previously "boring" utility stocks quite attractive.

For example, American Electric Power's stock has risen over 31% this year, with a market capitalization of $65 billion. Last month, the company raised its capital expenditure plan for the next five years from a previously massive $54 billion to $72 billion, primarily to power data centers being built for companies like Alphabet, Amazon, and Meta.

According to Koyfin data, its stock's short-selling ratio is currently 4%, whereas it typically ranged from 1% to 2% over the past decade.

So, have individual utility companies become the most popular short-selling targets in Goldman Sachs' data? The report shows that this is not the case, as their overall short-selling levels remain relatively mild compared to other sectors (after all, they are still utility companies).

Tesla remains the most shorted company in the US, while JPMorgan has made a rather "peculiar" debut in fourth place. Among the new members listed by Goldman Sachs that are heavily shorted, many can be categorized as "weak AI companies" or "bubble-like stocks related to AI." However, the top ten most shorted stocks still look quite "familiar," including:

• Tesla (TSLA.O)

• Palantir (PLTR.O)

• Palo Alto Networks (PANW.O)

• JPMorgan (JPM.N)

• Robinhood Markets (HOOD.O)

• Costco (COST.O)

• Bank of America (BAC.N)

• IBM (IBM.N)

• Oracle (ORCL.O)

• Lam Research (LRCX.O)

Goldman Sachs statistics show that the amount shorted for Oracle is $5.4 billion, Intel is $4.6 billion, and GE Vernova (which manufactures gas turbines for AI data centers) is $4.1 billion, all new entrants to the list.

Of course, these companies are large, so relative to their market capitalization, these short positions remain small (approximately 1%, 3%, and 3%, respectively). So, which stocks are the most shorted relative to their size? Goldman Sachs also provides the answer:

In contrast, relative to their market capitalization, among companies with a market cap of at least $25 billion, the most shorted stock in the US is Bloom Energy. Other companies on the list include Strategy, CoreWeave, Coinbase, Live Nation, Robinhood, and Apollo.

It is important to remember that Goldman Sachs' hedge fund positioning report is merely a delayed snapshot of the current market state; nevertheless, it still holds considerable reference value, as the report is based on the latest positioning data from 982 hedge funds, which collectively hold $4 trillion in stock positions, of which $2.6 trillion is long and $1.4 trillion is short.

Currently, it seems that the US stock market has recovered from last week's volatility, and many hedge funds remain cautious when facing AI giants, as bubbles often last longer than the funds' ability to pay. In fact, Amazon, Microsoft, Meta, Nvidia, and Alphabet are still the five most commonly held long positions among US hedge funds.

However, the rise in short-selling in the utility sector and some weak AI stocks indicates that some funds in the market are beginning to attempt positioning, potentially around what could be the next round of "big shorting."

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