Is it Big Short 2.0? Deutsche Bank reportedly shorting AI stocks as data center risks emerge

Apprehensions over Artificial or AI bubble have been raised following developments regarding to Nvidia and Palantir stocks. Now Deutsche Bank is reportedly weighing options such as executing synthetic risk transfer (SRT) and shorting AI company's stocks, according to reports. This comes as short investor Michael Burry placed bet on NVIDIA and Palantir.

Swedish digital infrastructure provider EcoDataCenter had secured 600 million euros ($703.5 million) in debt financing from Deutsche Bank to expand its AI data centres as demand for high-performance computing surges amid the AI boom.

The funding, provided by Deutsche Bank through its Private Credit and Infrastructure unit, will accelerate the construction of large-scale data centres in Falun and Borlange, north of Stockholm, designed to support AI workloads and other compute-intensive applications.


This week's wobble in shares connected to artificial intelligence is a stark reminder that the U.S. stock market is ever more reliant on the technology sector to drive it higher.

The S&P 500 and Nasdaq Composite on Tuesday suffered their biggest one-day drops in nearly a month, weighed down by a sharp tech decline. The indexes recovered somewhat on Wednesday, while the tech group extended losses slightly. Fueled by a long period of strong performance, tech is by far the biggest sector in the S&P 500, accounting for a roughly 36 per cent weight in the benchmark index - a higher level than during the dot-com bubble era 25 years ago, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Adding in megacap companies that are not classified as part of the technology sector - Google parent Alphabet, Amazon , Tesla and Facebook parent Meta Platforms - the combined weight amounts to nearly half of the S&P 500. With so much riding on prospects for AI, the sector's heavy weighting in major indexes leaves broader markets vulnerable to negative developments, investors said.

"A significant percentage of the S&P is tied to one single sector and one single theme," said Walter Todd, chief investment officer at Greenwood Capital in South Carolina. "If there is some hiccup around (AI) ... anything like that is a risk to the individual names, but also the market overall." The sector has declined over 3 per cent since last week, with weakness in names such as Palantir Technologies and Nvidia that have been signature stocks in the AI trade.

Investors say tech shares might have been due for a breather after a strong run, and such a pullback can serve as a healthy reset that paves the way for further gains. At the same time, with much of Wall Street wary of signs of an "AI bubble" in the stock market, any weakness is being scrutinized as potentially the start of more severe declines.

FAQs

Q1. What is full form of AI?
A1. The full form of AI is Artificial Intelligence.

Q2. What are top three indexes?
A2. Top three indexes are S&P 500, Nasdaq, and Dow Jones.