The AI Gold Rush: Boom or Bust?

Equities market performance has been something of a pleasant surprise in the first half of 2023. In the U.S. market, the S&P 500 closed out the 2nd quarter roughly 16% higher than its mark from the start of the year. This growth so far has exceeded the expectations of many market forecasters, who were largely divided on bull and bear predictions heading into 2023. 

One of the biggest growth stories has been the rapid ascent of artificial intelligence and AI-adjacent stocks. Investor interest in AI-based technology exploded when a plethora of consumer-level AI applications, most notably ChatGPT, were released towards the end of last year. According to Societe Generale, most of the year-to-date growth in the S&P 500 can be attributed to firms that sit somewhere along the AI value chain.  

Perhaps the most notable case of the AI bump is chipmaker NVIDIA (NVDA), the top-performing individual stock in the S&P 500 index. Looking at DataLend’s data, there was evidence of short activity on NVIDIA stock earlier this year, with nearly 24 million shares on loan as of February 27. As AI demand rose and NVIDIA produced strong financial results, DataLend observed a steep drop-off in loaned shares, down to roughly 1 million as of June 28.  

While the world’s largest tech firms have certainly benefited, the momentum of AI has also been a boon to a multitude of smaller-cap names in the space. Companies like C3.ai (AI), Soundhound AI (SOUN) and Upstart Holdings (UPST), to name a few, have made significant gains in recent months. Naturally, market commentary has begun to question whether the AI revolution is truly here to stay, or if investors are witnessing the dot-com bubble in a different hue. Using DataLend market data, we can begin to draw some conclusions about short activity in the AI-focused technology sector.