Tech bears are betting that they have piled up to a five-year high. Can Anthropic's IPO trigger an AI rebound?

The Zhitong Finance App learned that Wall Street's recent risk aversion to stocks may have paved the way for a sharp rebound, and technology stocks are particularly resilient — provided that Anthropic PBC's IPO can rekindle the market's enthusiasm for AI.

According to Deutsche Bank data, investors have cut their stock exposure to a level roughly in line with the historical norm. Decision-making investors have reduced their exposure to US stocks to their lowest level in more than a month, and funds using computer-driven trading strategies have also reduced their positions. This leaves room for repurchases once confidence returns.

Hedge funds have gone further and are increasingly betting on falling stocks. Goldman Sachs Group said that for every dollar of stock bought by its hedge fund clients this month, it shorted about $5 of stock. According to Goldman Sachs records, the scale of hedge funds using borrowed funds to short stocks is close to the highest level in five years.

If the stock market starts to rise, these short bets may in turn boost the rally, forcing investors who are betting on the decline to buy stocks to close their positions.

Technology stocks have been hit particularly hard. In the two weeks ending October 16, technology stocks experienced the worst net sale in more than 10 years in Goldman Sachs records. Deutsche Bank said that since the beginning of October, investors have drastically cut their technology holdings, falling to a six-month low, close to the level during the Iran war.

Since October 6, the Nasdaq 100 index has fallen 4.5%, and the severe macro environment has worsened investor sentiment. The war in Iran continues to boost Brent crude oil, increasing concerns about high inflation and interest rates. At the same time, doubts about the sustainability of the AI investment boom are heating up. Cloud computing provider Coreweave's review highlights the risk of using debt to finance AI infrastructure, particularly as interest rates rise.

This round of retreat is likely to make tech stocks particularly sensitive to changes in sentiment. If Anthropic's IPO succeeds, it may re-energize AI and attract investors back to the sector.

Joe Gilbert, portfolio manager at Integrity Asset Management, said, “Investors have been adjusting their portfolios as technology and semiconductor leadership is being challenged, and it is now close to the level where investors only need confirmation (reassurance pill) that the 'AI narrative is still on track'.

Anthropic's IPO will be a key test for the post-earnings season market. Similar to the SpaceX IPO, investors will seek to allocate a unique unicorn stock — at least until OpenAI goes public — we think demand will be strong.”

Retail investors may also boost the rebound. From the end of August to the beginning of October, the proportion of retail investors buying call options was abnormally higher than that of put options. This activity has slowed over the past two weeks, but is still above average, indicating that investors may still be willing to buy.

John Marshall, partner at investment firm Carrick Lane, wrote, “We think this shows that retail investors still have room to increase their positions in AI transactions.”

SpaceX's listing provides an example of large IPOs attracting retail investors. On Friday, June 12, the first day of SpaceX's listing, retail investors bought more US stocks than they sold on the Citadel Securities platform, setting a record for the highest number in a single day for the platform. The company handles approximately 35% of retail transactions in US listed stocks. Both stocks and options trading volumes have surged.

Scott Rubner, head of stock and derivatives strategy at Citadel Securities, said, “The scale of retail participation is extremely large.”

However, not all investors are retreating, and idle funds that are simply being spent on long funds may be running out. Barclays data shows that traditional investment funds continue to buy US stocks even though hedge funds have reduced their bullish bets.

Barclays's Stefano Pascale said that investors have invested about 340 billion US dollars in US equity funds this year, which is more than three times the investment of about 100 billion US dollars in the same period in previous years. Active stock selection funds currently account for less than 1% of their assets in cash, which indicates that most of their available capital has been invested.

Even if AI enthusiasm returns, this may limit the room for these investors to buy further.