Hedge funds increase short bets amid AI and inflation concerns

Hedge funds have raised bearish equity positions to near five-year highs, according to Goldman Sachs prime brokerage data. Short selling has outpaced long buying across global equities by approximately five to one this month, with short leverage reaching the 99th percentile of its five-year range.

This defensive positioning follows a sharp reversal in artificial intelligence-related stocks, driven by stronger-than-expected US inflation data and mounting concerns regarding returns on AI infrastructure spending. The Nasdaq 100 recently experienced its steepest weekly decline since April 2025.

Selling has been heavily concentrated in the technology sector. Global information technology stocks recorded their largest two-week net selling in over a decade. While net exposure to the ‘Magnificent Seven’ technology stocks has reached a record high, Goldman Sachs warned that crowded bearish positioning leaves funds vulnerable to a potential short squeeze if markets rebound.