Short sellers have made record bets against the US stock market, according to new analysis from S3 Partners.

The financial data firm says its measure of short interest in US stocks has reached record levels. While short positions are a natural hedging strategy among bullish investors, increasing bets on a decline in US stocks align with concerns about high valuations and cracks in the AI ​​narrative as investors question the economics of the colossal capital expenditure.

Short interest in all S&P 500 stocks represents about 3.7% of the index’s float, according to data aggregated by S3 from hedge funds, asset managers and financial firms. This reflects the highest volume of short interest the index has seen since S3 began tracking the data in 2010.

Before 2010, short interest in the median S&P 500 stock peaked at about 3.8% of the index’s market capitalization in 2008, during the Great Financial Crisis, according to analysis by Goldman Sachs.

The rise in short interest this year comes at an important juncture in the nearly four-year bull market, with major indexes still hovering around all-time highs even as doubts about the AI ​​bull case filter into the market.

Memory and semiconductor stocks, two of the market’s hottest trades this year amid the AI ​​frenzy, stumbled into a bear market this month. At the same time, investors have also been wary of AI hyperscalers as they spend hundreds of billions on the technology with no clear path to monetization.

Broader macroeconomic concerns are also casting a shadow over the rest of the market. Tensions remain high between the United States and Iran, and questions remain about the trajectory of inflation this year. A respite in June CPI data could prove temporary if the war reignites, which could push the Federal Reserve to raise interest rates this year.

Institutional investors have become more optimistic overall over the past month, but are increasingly cautious about semiconductor trading. 82% of fund managers surveyed in July said they believed global chip stocks are the most crowded trade in financial markets, according to Bank of America.

Nearly half of fund managers surveyed also said they believe the AI ​​bubble is the market’s biggest tail risk, up from 28% of investors who thought so the previous month.

However, investors also increased their allocation to stocks, with positioning in US stocks reaching its highest level since December 2024, the bank wrote in a recent note.