Short sellers have lost $120 billion betting against the US stock market that's been powered by the AI boom

  • Short sellers betting against the US stock market have lost about $120 billion this year, per the WSJ. 
  • The eye-watering losses come as hype over artificial intelligence fuels a stunning rally in US equities. 
  • Cumulative short positions reached $1 trillion in June as concerns about reduced market breadth take hold. 

Short sellers betting against US stocks have taken a major hit this year thanks to a sizzling rally powered by the investor frenzy over artificial intelligence.

The year-to-date surge in equities has led to about $120 billion in mark-to-market losses for short sellers, with $72 billion of it stemming in the first half of June alone, the Wall Street Journal reported, citing data from S3 Partners. 

Short selling, also known as shorting, refers to investors borrowing stock to sell with the goal of buying it back later at a lower price and returning it to the lender, pocketing a profit. Traders engage in short selling when they expect a company’s stock price to decline, and want to make money if that happens.

This year, quite the opposite has happened in US stocks. 

The market has been hugely boosted by the AI hype and investor hopes that the Federal Reserve will ease up on its monetary-tighening campaign – both of which have helped the S&P 500 and Nasdaq 100 15.3% and 39% this year, respectively. 

The bearish sentiment among some investors stems from concerns the rally is too narrowly focused on technology stocks, given Big Tech companies have largely driven S&P 500 gains this year, and that some shares may be overvalued.

That’s seen total short interest in US equities reach $1 trillion in June, per the Journal.

While stocks have been on upward trajectory so far this year, top market commentators have warned the rally isn’t set to last and could face a 15% drop