Tech Investors Spend Billions Insuring Against AI Stock Crash

Investors in the artificial intelligence sector are spending heavily on financial instruments designed to limit losses during a market downturn.

This shift in strategy follows a volatile week in the stock market. On Friday, a sharp selloff erased more than $1 trillion in market value. The Nasdaq 100 index dropped 3.4% during that session, while the S&P 500 fell 1.8%. The technology sector within the S&P 500 declined by more than 4.2%, according to NBC News.

Concerns have been building for several weeks. Rising borrowing costs for major data center projects and chip purchases have strained budgets. At the same time, share prices for key AI companies have fallen. These factors have pushed investors toward hedging strategies that were less common a year ago.

Stephen Solaka, a senior vice president at Gateway Investment Advisers, noted that demand for protection is high. “We’re seeing really significant demand from folks looking to protect downside,” Solaka said. He observed that many technology executives have accumulated substantial gains and now prioritize securing that wealth over pursuing further returns. “These people have made so much money, they’re quitting to hedge their stock,” he said.

Trading data reflects this trend. According to Cboe Global Markets, trading in put options tied to AI cloud infrastructure company CoreWeave surged to record levels in October. Put options give investors the right to sell shares at a predetermined price before a specified date. Investors pay a premium for these contracts to limit potential losses if prices fall sharply.

Credit markets show similar stress. The cost of insuring against debt defaults for Amazon, Alphabet, Microsoft, Meta, and Oracle rose over the past month to its highest level since 2021. Eugene Grinberg, a co-founder of bond data provider Solve, stated that there were no exceptions among these firms. “There were no exceptions, suggesting broad market concern about the sector rather than idiosyncratic credit events at individual companies,” Grinberg said.

New financial products are entering the market to address specific infrastructure risks. Jump Trading has begun offering contracts that allow companies to protect themselves against a potential collapse in the price of computing power. Companies renting out Nvidia chips can use these tools to lock in a minimum rental price, ensuring a baseline for revenue even if demand for AI computing power decreases.