Which targets are Wall Street short sellers eyeing? Goldman Sachs reveals the hidden short-selling trends amid the AI wave

The most shorted stock in the United States is Bloom Energy, with other companies on the list including Strategy, CoreWeave, Coinbase, Live Nation, Robinhood, and Apollo.

Source: Golden Ten Data

Currently, sentiment in the U.S. stock market is somewhat tense. Oracle credit default swap (CDS) trading volumes have surged, and even insiders in the AI industry admit that there are some "signs of a bubble" in the market. Against this backdrop, discussions about when, where, and how to short are increasingly common.

The latest hedge fund holdings report from Goldman Sachs contains many interesting details. The report shows that the so-called "smart money" is not yet ready to aggressively short AI giants, but some funds have started to focus on weaker companies within this wave.

First, after such a strong rally, the median short interest of S&P 500 constituents remains unexpectedly high. By total market capitalization, it amounts to 2.4%, which is at the 99th percentile of short interest over the past five years and far above the long-term average since 1995.

As early as May, signs of renewed short interest had already emerged. Since then, the short interest ratio has continued to rise and has remained high even after two small but painful "short squeezes" in mid-July and October.

It is also worth noting that the short interest ratio for the tech-heavy Nasdaq 100 index is slightly higher, at 2.5%. The sector with the largest increase in short interest is small-cap stocks, with the median short interest ratio for Russell 2000 constituents now reaching 5.5%.

However, Goldman Sachs points out in the report that the most notable development is the surge in short interest in the utilities sector, which increased by 0.3 percentage points to 3.2%. While this may not sound dramatic, Goldman Sachs notes 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 power AI models consume enormous amounts of energy, making previously "boring" utility stocks quite attractive.

For example, American Electric Power's stock price has risen more than 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 an already large $54 billion to $72 billion, mainly to supply power to data centers built for companies like Alphabet, Amazon, and Meta.

According to Koyfin data, its short interest ratio is currently 4%, whereas over the past decade it has typically remained in the 1% to 2% range.

So, are individual utility companies the most popular short targets in Goldman Sachs' data? The report shows this is not the case, as their overall short interest remains relatively moderate compared to other industries (after all, they are still utility companies).

Tesla still tops the list of the most shorted companies in the U.S., while JPMorgan has made its debut in fourth place in a rather "peculiar" fashion. Among the new heavily shorted members listed by Goldman Sachs, many can be classified as "weak AI companies" or "AI-related bubble stocks." However, the top ten most shorted stocks are still quite "familiar," and they are:

• 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 Oracle has $5.4 billion in short positions, Intel has $4.6 billion, and GE Vernova (which manufactures gas turbines for AI data centers) has $4.1 billion, all of which are new entrants to the list.

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

By comparison, among companies with a market capitalization of at least $25 billion, the most shorted stock in the U.S. relative to its size is Bloom Energy. Other companies on the list include Strategy, CoreWeave, Coinbase, Live Nation, Robinhood, and Apollo.

It should be remembered that Goldman Sachs' hedge fund holdings report is only a delayed snapshot of the current market state. Nevertheless, it still has considerable reference value, as it is based on the latest holdings data from 982 hedge funds, which collectively hold $4 trillion in stock positions, including $2.6 trillion long and $1.4 trillion short.

At present, it appears that the U.S. 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 a fund's solvency. In fact, Amazon, Microsoft, Meta, Nvidia, and Alphabet remain the five most commonly held long positions among U.S. hedge funds.

However, the rise in short interest in the utilities sector and some weaker AI stocks indicates that some funds in the market have begun to position themselves, suggesting that this may be the next potential area for a "big short."