Skeptical Investors Hunt for Ways to Bet Against the AI Frenzy

The artificial intelligence revolution has been the primary engine of global equity markets for three years, minting trillion-dollar valuations and fueling a gold rush for anything involving a microchip. But as the fervor reaches a fever pitch, a growing contingent of market participants is starting to eye the exits—and they aren’t just selling; they are looking for ways to profit from a potential collapse.

According to a recent Wall Street Journal report, the “AI bears” are stirring after a long slumber. These skeptical investors are hunting for sophisticated ways to “short” the AI frenzy, convinced that the massive capital expenditures currently flowing into data centers and hardware will eventually fail to yield the astronomical returns promised by Silicon Valley.

The Search for the “Anti-AI” Trade

Shorting a “hot” market is notoriously dangerous. The history of finance is littered with the remains of hedge funds that tried to bet against the dot-com bubble or the 1920s bull market too early. However, today’s skeptics are becoming more surgical in their approach. Rather than simply betting against the share price of every tech company, they are looking for “proxies” for the bubble’s eventual burst.

One such target is Oracle. The Wall Street Journal notes that bearish bets against the software giant have increased significantly, with short interest rising amid investor concerns about the company’s heavy spending on AI infrastructure. Skeptics argue that Oracle’s massive $300 billion deal to provide computing power to OpenAI makes it a primary casualty if the ChatGPT creator—or the broader generative AI market—faces a valuation reset.

“An Oracle short is a bet against OpenAI,” Michael O’Rourke, chief market strategist at JonesTrading, told the Journal. He noted that “people are more comfortable shorting the hyperscalers now because they’re sacrificing their free cash flow.” This shift in strategy reflects a growing concern that the “Magnificent Seven” and their peers are spending so much on AI that they are undermining their own financial stability.

Private Wagers and Shadow Markets

Because many of the most influential AI companies, such as OpenAI and Anthropic, remain privately held, investors cannot simply “short” their stock on a public exchange. This has led to the emergence of creative, “off-the-books” wagers.

Benn Eifert, who runs the San Francisco hedge fund QVR Advisors, has reportedly entered into personal legal contracts with tech professionals regarding OpenAI’s future valuation. These private bets allow investors to express a bearish view on a company that hasn’t even hit the public markets yet. If OpenAI’s valuation fails to meet certain thresholds after an eventual IPO, Eifert stands to win millions; if the hype continues to defy gravity, he loses.

These “shadow shorts” highlight the desperation of contrarian investors to find an outlet for their skepticism. They point to the “burn rate” of AI companies—the rate at which they consume cash—as a sign that the current trajectory is unsustainable. With OpenAI reportedly burning billions of dollars to train ever-larger models, bears argue that a “big pullback in data center spend” is an inevitability.

The Hardware Fatigue

Even Nvidia, the poster child of the AI era, is not immune to the rising tide of skepticism. While the company has seen record-breaking earnings, some traders believe the hardware cycle has peaked.

The Journal reports that some hedge fund managers have initiated shorts on Nvidia, betting that the “hyperscalers”—companies like Microsoft, Meta, and Alphabet—will eventually saturate their need for H100 and Blackwell chips. If these tech giants even hint at a reduction in capital expenditure (capex), the impact on Nvidia’s stock could be catastrophic.

“It’s inevitable that they cut back on spending,” says investor Dan Spiegel, who predicts that even a minor shift in guidance could crash the stock. This “Capex Cliff” theory suggests that once the initial infrastructure is built, the recurring revenue from AI software may not be sufficient to justify continued high-end hardware purchases at current scale.

Bond Markets and the “Meme-Stock” Fear

Interestingly, some bears are avoiding the stock market altogether, fearing “short squeezes” driven by retail investors. When a stock is heavily shorted, a sudden spike in price can force short-sellers to buy back shares to cover their losses, further fueling the rally. To avoid this, some savvy investors are targeting the bond market.

Bank of America strategists have reportedly urged clients to short the bonds of tech giants. Because the bond market is dominated by institutional players and lacks the “meme-stock” volatility of the equity market, it is seen as a safer way to bet on the deteriorating creditworthiness of companies taking on massive debt to fund their AI ambitions.

The Risks of Being a Bear

Despite the growing list of concerns—ranging from energy constraints to the lack of clear monetization for AI tools—shorting the AI trade remains a “widow-maker” strategy for many. Every time the market seems ready to cool, a new breakthrough or a blockbuster earnings report sends shares back to record highs.

TheJournal notes that many banks remain wary of facilitating massive bearish wagers. Memories of the 2008 financial crisis, where a few individuals made billions betting against the housing market while the rest of the world suffered, have made prime brokers cautious about taking the “other side” of these trades.

Furthermore, the “AI FOMO” (fear of missing out) remains a powerful force. As long as institutional investors feel they must own these stocks to keep up with their benchmarks, the floor under AI valuations remains relatively solid.

A Turning Point?

Is the hunt for shorts a sign that the bubble is about to burst, or just a healthy sign of market skepticism? For the bears, the math is simple: the “returns on investment” for AI must eventually materialize. If the world doesn’t see a massive surge in productivity or new revenue streams from AI-integrated products, the trillions of dollars currently being poured into the sector will be seen as one of the greatest misallocations of capital in history.

For now, the AI frenzy continues, but the undercurrent of doubt is growing. As investors increasingly look for the “exit door,” the market is entering a precarious phase where the narrative of “limitless growth” is being challenged by the cold reality of balance sheets. Whether the skeptics are right—or simply too early—will likely be the defining story of the financial markets in 2026.

Source: The Wall Street Journal