Investors turn to 'Big Short' strategies as AI stocks tumble, fears of a market crash rise - report

NOVEMBER 1, 2026 22:38Investor enthusiasm for artificial intelligence's potential to transform the global economy has fueled massive bets on the sector; however, growing concerns about a possible downturn are prompting investors to seek financial protection against losses, The Wall Street Journal reported Saturday.“We’re seeing really significant demand from folks looking to protect downside,” said Stephen Solaka, a senior vice president at Gateway Investment Advisers.Investors and technology executives are increasingly turning to financial instruments such as put options and credit-default swaps to protect their investments.Put options give investors the right to sell shares at a predetermined price before a specified date. For shareholders seeking protection, these contracts can limit potential losses if stock prices fall sharply, although investors must pay a premium for that protection.A combination of rising borrowing costs for major data center projects and chip purchases, falling share prices among AI companies, and a broader stock market selloff has heightened concerns about the sector's financial outlook.In this photo illustration, icons for Copilot, Gemini, Meta AI, Claude, ChatGPT, Grok, DeepSeek, Perplexity and Doubao are displayed in a folder titled ''Artificial Intelligence'' on an iPhone resting on a computer keyboard on September 15, 2026. (credit: illustration by Cheng Xin/Getty Images)Friday's technology stock selloff wiped out more than $1 trillion in market value. The Nasdaq 100 index fell 3.4%, while the broader S&P 500 dropped 1.8%. The S&P 500's technology sector was hit particularly hard, declining more than 4.2%, NBC News reported Friday.AI companies keep pursuing billions in funding, even amid selloffThe growing demand for financial protection comes as AI companies continue seeking enormous amounts of capital to fund infrastructure development and expansion.According to Solaka, some investors have accumulated such substantial gains from technology stocks that they now prioritize protecting their wealth over pursuing further returns.“These people have made so much money, they’re quitting to hedge their stock,” Solaka said, adding that some companies restrict employees’ trades.For example, trading in put options tied to AI cloud infrastructure company CoreWeave surged to record levels in October and remained elevated, according to data from Cboe Global Markets.AI investors turn to credit-default swaps to hedge against debt risksInvestors are also turning to credit-default swaps, financial contracts that protect against a borrower failing to repay its debt.According to the report, the cost of insuring against debt defaults by major technology companies, including Amazon, Alphabet, Microsoft, Meta, and Oracle, rose over the past month to its highest level since 2021.“There were no exceptions, suggesting broad market concern about the sector rather than idiosyncratic credit events at individual companies,” said Eugene Grinberg, a co-founder of bond data provider Solve.As investment in AI infrastructure grows, trading firm Jump Trading has begun offering financial contracts that allow companies to protect themselves against a potential collapse in the price of computing power.For example, companies renting out Nvidia chips could use these contracts to lock in a minimum rental price, protecting revenue if demand for AI computing power falls.The growing demand for financial protection is reminiscent of the events depicted in The Big Short, when investors used credit-default swaps to bet against mortgage-backed securities before the 2008 financial crisis. Unlike those investors, however, many of today's technology shareholders are not necessarily betting on a market collapse, but seeking to protect gains accumulated during the AI boom.Follow us on Google