AI investors rush to hedge against potential tech market downturn - WSJ

Investors and technology leaders are flocking to hedge against a potential artificial intelligence market downturn, worried about the sustainability of trillions invested in AI, according to a recent report by The Wall Street Journal. The rush for protection comes as technology stocks have plummeted and worries about financial risks tied to AI infrastructure spending have intensified.

The Nasdaq Composite, a key index for technology stocks, dropped 2.9% last Friday, marking its worst monthly performance since March 2025, as investors reevaluated valuations across the sector. CoreWeave, a key player in AI infrastructure, has seen an influx of demand for downside protection. Trading volumes for put options linked to CoreWeave surged to all-time highs in October, according to Cboe Global Markets data.

These contracts allow investors to profit if CoreWeave's shares drop to $35, down from around $55 recently. The concerns have expanded to corporate debt markets as well. The price of insuring against defaults by major tech firms like Amazon, Alphabet, Microsoft, Meta, and Oracle has surged to its highest level since 2021, according to bond data provider Solve.

Oracle's credit-default swap spreads widened by more than one percentage point, indicating heightened risk. In response, trading firms are introducing new financial products to manage risks related to AI computing infrastructure. Jump Trading has set up a computing-power trading desk that offers derivatives aimed at safeguarding data center operators against falling chip rental prices.

With Nvidia B300 chip rental rates climbing roughly 56% this year to $7.56 per hour, these contracts can shield operators from a potential decline in rental rates as computing capacity expands. Similarly, Susquehanna International Group is attracting interest from data centers and private AI infrastructure providers looking to protect against semiconductor-related risks.

Some of these contracts would track computing-power indexes, potentially enabling operators to secure financing while limiting exposure to falling rental revenues. Despite the surge in hedging activity, the demand for protection remains relatively modest compared to the overall AI investment boom.