What Hedge Funds are Shorting Right now

The vibes in the stock market are getting weird. Oracle's credit default swaps - basically insurance against the company going bust - are going bonkers. Even people who work in AI are starting to mutter that maybe, just maybe, things have gotten a little overheated. So naturally, investors are starting to wonder: Is it time to short something?

Goldman Sachs just dropped a report on what hedge funds are actually doing with their money, and it tells us that the "smart money" crowd isn't quite ready to bet against Microsoft, Nvidia, or the other AI giants. But they're definitely circling some of the smaller, more vulnerable companies that have been riding the AI hype train.

Even after this massive market rally we've had, hedge funds are still shorting stocks at near-record levels.

The median short interest across S&P 500 companies is sitting at about 2.4 percent of total market value. That's in the 99th percentile compared to the last five years - meaning it's higher than almost any other point in recent memory. It's also way above the historical average going back to 1995.

The Nasdaq 100 - home to all your favorite tech darlings - is seeing similar action, with short interest at 2.5 percent. But the real drama is happening in two very different corners of the market.

First, there's small-cap stocks. The Russell 2000, which tracks smaller companies, is getting absolutely pummeled by short-sellers. We're talking about a median short interest of 5.5 percent. That's more than double what we're seeing in the big indexes, and it suggests hedge funds think a lot of these little guys are overvalued and vulnerable.

But Utilities are suddenly becoming hot short.

Yes, utilities. The boring companies that keep your lights on and your water running. The stocks your grandparents bought for stable dividends. Those utilities.

Short interest in utility stocks just jumped by 0.3 percentage points to hit 3.2 percent. Okay, that might sound like the least exciting sentence you've read all day. But according to Goldman Sachs, this is one of the highest levels of utility shorting ever recorded.

AI data centers are absolutely ravenous for electricity. Training and running these massive language models requires an insane amount of power. So companies that seemed destined for eternal sleepiness - your regional electric utilities - have suddenly become surprisingly exciting growth stories.

Take American Electric Power. This year alone, it's up more than 31 percent and now has a market cap of $65 billion. That's not bad for a company whose main job is keeping the lights on in the Midwest. 

Last month, AEP announced it was jacking up its five-year capital spending plan from an already chunky $54 billion to $72 billion. The reason was to build out power infrastructure for all the data centers that Google, Amazon, and Meta are frantically constructing.

The market loved this story. But now short-sellers are getting skeptical. According to data from Koyfin, short interest in AEP shares has climbed to 4 percent - double the 1–2 percent range where it's mostly hung out for the past decade. Hedge funds are essentially saying: "Sure, the AI hype made this stock pop. But maybe it popped a little too much."

Now, to be clear, utilities aren't the most shorted stocks in Goldman's data. Even with this recent surge, the overall level of short interest is still pretty modest compared to, say, struggling retailers or speculative tech companies. They're still utilities, after all.

Tesla, unsurprisingly, is back at the top of America's most-shorted list. It's basically a permanent fixture there at this point. But JPMorgan showing up at number four is genuinely bizarre and kind of fascinating - we'll leave that mystery for another day.

The more telling story is in the new additions to Goldman's heavily-shorted basket. A bunch of the fresh entries - highlighted in bold in their list - fall into two categories: either they're the weaker players in the AI arms race, or they're AI-adjacent stocks that have gotten absolutely bubbly.

Hedge funds have piled $5.4 billion worth of shorts into Oracle. Another $4.6 billion into Intel. And $4.1 billion into GE Vernova, which makes the gas turbines that power AI data centers. These are all newbies to the most-shorted list, and they're all connected to the AI boom in one way or another.

These are massive companies. So even though billions of dollars in shorts sounds dramatic, as a percentage of their total market value, we're often talking about pretty small positions - 1 percent for Oracle, 3 percent each for Intel and GE Vernova. Big money, but not exactly going for the jugular.

So Which companies have hedge funds really turned hardest relative to their size?

Lucky for us, Goldman broke that down too.

The most heavily shorted stock in America with a market cap above $25 billion is Bloom Energy - a company that's become the poster child for the "we're definitely going to laugh about this later" phase of the AI bubble.

The rest of the top-shorted list include Strategy (the Bitcoin-hoarding company formerly known as MicroStrategy), CoreWeave (the AI cloud darling), Coinbase, Live Nation, Robinhood, and Apollo. These are the stocks where hedge funds are saying, "Yeah, this seems… not sustainable."

Now, some important caveats. Goldman's report is essentially a snapshot in time - a pretty good one, drawing from the latest holdings of 982 hedge funds managing $4 trillion in stocks ($2.6 trillion long, $1.4 trillion short) - but still just a snapshot.

The market has already bounced back from last week's jitters, and a lot of hedge funds are understandably hesitant to short the big AI players. After all, bubbles have a nasty habit of lasting longer than short-sellers can stay solvent.

In fact, Amazon, Microsoft, Meta, Nvidia, and Alphabet remain the five most popular long positions among the hedge funds Goldman tracks. The smart money isn't abandoning the AI giants.

But that increase in shorts on utilities? Those growing bets against Oracle, Intel, and the flashier AI-adjacent names? That tells you something. 

Some hedge funds are starting to test the waters. They're not going after the apex predators of the AI boom - but they're definitely starting to pick off some of the weaker members of the herd.

The big short might not be here yet. But the opening scenes are starting to play out.