AI Fatigue Hits Tech Biggies: Inverse ETFs in Focus

Short sellers are wagering against top AI stocks currently, which has earned them billions. On Wednesday, the Nasdaq Composite fell 0.7%, capping a two-day decline of 1.5% as concerns about the sustainability of the AI boom made the rounds.

According to data from S3 Partners, short sellers amassed $5.6 billion on wagers against AI-linked companies in just two trading sessions.

Big Tech Takes a Hit

Among the Magnificent Seven, Meta META has been the hardest hit, down 4% over the past five sessions. NVIDIA NVDA slipped 3.8%, while Microsoft MSFT and Apple AAPL fell nearly 3% each. Alphabet GOOG also fell about 1%. Short bets against these five giants alone led to $2.8 billion in profits for investors over the past two days.

Sharp Losses Outside the Tech Biggies

Beyond Big Tech, losses were steeper. Advanced Micro Devices AMD slid more than 10% in the last week, while Broadcom AVGO and Micron MU each fell over 5%. AI data center operator CoreWeave CRWV — seen as an AI “pure play” — nosedived 24% in the same period.

Meta and Palantir Under Pressure

Meta has made huge investments in AI. Despite this, short sellers increased positions worth $4.7 billion over the past week, reaping $1.1 billion in profits in just two days. Meanwhile, Palantir PLTR, which had surged more than 150% since April, has now fallen over 15% in its longest losing streak since March. Investors shorting Palantir have gained more than $1 billion.

AI Bubble Speculations

The recent downturn has been fueled by shifting sentiment. On Monday, researchers for MIT’s Project NANDA released a report saying 95% of companies it studied are getting no return on AI. The findings of the report were first detailed by Fortune, as quoted on Yahoo Finance.

Moreover, OpenAI CEO Sam Altman recently indicated that the industry may be in a bubble reminiscent of the dot-com crash. DA Davidson analyst Gil Luria compared the selloff to a pendulum swing, indicating that AI still has “limited applications” outside of chatbots and search. This has tempered enthusiasm among investors, as quoted on Yahoo Finance.

Any Silver Lining?

AI bulls like Wedbush’s Dan Ives remain optimistic. He described the current pullback as temporary and said AI will continue to drive markets higher. He added that “the tech bull cycle will be well intact at least for another 2-3 years given the trillions being spent on AI.”

Inverse ETFs in Focus

Still, if you are of the view that the AI stock valuations are too stretched, you can play inverse tech-based exchange-traded funds (ETFs) at the current level.

These ETFs include the likes of ProShares UltraPro Short QQQ SQQQ, Direxion Daily Technology Bear 3X Shares TECS, MicroSectors Solactive FANG & Innovation -3X Inverse Leveraged ETN BERZ and ProShares UltraShort QQQ QID, which have gained materially. SQQQ, TECS, BERZ and QID gained 1.8%, 1.8%, 4% and 1.2%, respectively, on Aug. 21, 2025.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research