Cracks in the AI narrative seem more serious this time (opens original article in a new tab)

Bouts of volatility in the AI trade are raising concerns about a potential rout as positioning and crowding levels reach critical levels, with hedge funds trimming exposure and leveraged ETFs amplifying market swings.

• Bouts of volatility in the AI trade are threatening to snowball into a rout with stretched positioning and crowding levels flashing red
• Hedge funds have begun to trim exposure to AI as doubts about future returns on tech investments resurface
• Leveraged ETFs account for $200 billion in assets, with every 1% move in the underlying index triggering $9 billion of rebalancing in the same direction
• Realized volatility has been rising sharply, with continued sharp moves likely to turn volatility-control funds into heavy sellers