Which targets are Wall Street shorts eyeing? Goldman Sachs reveals the shorting undercurrents amid the AI wave.

Source: Jin10

The current sentiment in the US stock market is slightly tense, with a surge in the trading volume of Oracle's credit default swaps (CDS), 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 the market are increasing.

Goldman Sachs' latest hedge fund position report includes many interesting details. The report shows that the so-called “smart money” is not yet ready to heavily short AI giants, but some of the funds have already begun to pay attention to the weaker companies in this wave.

First of all, after experiencing such a strong upward trend, the median short-selling ratio of S&P 500 components remains unexpectedly high. It stands at 2.4% in terms of total market capitalization, which is in the 99th percentile of short-selling levels over the past five years and is significantly higher than the long-term average since 1995.

As early as May, there were signs of a renewed interest in short selling. Since then, the short selling ratio has continued to rise, remaining high even after experiencing two small but painful “short squeeze” events in July and mid-October.

It is also worth mentioning that the short-selling ratio of the Nasdaq 100 index, which is concentrated in technology stocks, 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 the Russell 2000 index constituents currently reaching 5.5%.

However, Goldman Sachs pointed out in the report that the most striking development is the surge in the short selling ratio of the utilities sector, which increased by 0.3 percentage points to 3.2%. It may not sound astounding, but Goldman Sachs stated that this is one of the highest levels ever recorded.

This is likely related to the AI bubble. After all, the data centers needed to drive AI models consume enormous amounts of energy, making the originally “boring” utility stocks quite attractive.

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

According to data from Koyfin, the short selling ratio of its stocks is currently 4%, whereas it has typically maintained a range of 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 industries (after all, they are still utility companies).

Tesla remains at the top of the list of the most shorted companies in the United States, while JPMorgan has made its debut in fourth place in a rather “peculiar” manner. Among the new members heavily shorted as listed by Goldman Sachs, many can be categorized as “weak AI companies” or “bubble stocks related to AI.” However, the top ten most shorted stocks still seem quite “familiar,” which are:

Tesla (TSLA.O)

Palantir(PLTR.O)

Palo Alto Networks (PANW.O)

JPMorgan Chase (JPM.N)

Robinhood Market (HOOD.O)

Costco (COST.O)

Bank of America (BAC.N)

IBM(IBM.N)

Oracle Script (ORCL.O)

Ram Research (LRCX.O)

Goldman Sachs statistics show that Oracle has a short position of $5.4 billion, Intel has $4.6 billion, and GE Vernova (which manufactures gas turbines for AI data centers) has $4.1 billion, all of which are newly listed companies on the list.

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

In comparison, relative to its market capitalization, the most shorted stock in the U.S. among companies with a market value of at least $25 billion 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 holdings report is merely a delayed snapshot of the current market status. Nevertheless, it still holds considerable reference value, as the report is based on the latest holdings data from 982 hedge funds, which collectively hold $4 trillion in stock positions, including $2.6 trillion in long positions and $1.4 trillion in short positions.

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

However, the increase in short selling of the utilities sector and some weak AI stocks indicates that some funds in the market have begun to attempt positioning, suggesting that this may be a potential area for the next round of “big short.”