Short sellers increasing exposure
Market data indicate that investors taking short positions are expanding their wagers against a collection of European companies viewed as susceptible to disruption from artificial intelligence. On a basket compiled by UBS, the metric that measures shares out on loan as a percentage of free float - a common proxy for short interest - has climbed, averaging a rise of just over 5% compared with roughly 2% two years earlier.
Concentration of elevated short ratios
Within that UBS basket, several constituents are recording a shares-out-on-loan ratio above 5%. Examples cited include WPP, Hays, Randstad, and Ubisoft Entertainment. The basket overall has underperformed, falling 39% over the last 12 months and trailing the pan-European Stoxx 600 index during the same period.
Context from other markets
Analysts have been watching market moves closely after the arrival of new AI tools, which have prompted volatility across multiple sectors. In the United States, shares of companies across software, real estate, financial services and insurance brokerage sectors have seen pressure amid concerns related to AI-driven disruption, although some market participants have argued that at least some of those declines may have been overstated.
Investor sentiment and sector dynamics
One research note captured the unsettled mood among technology investors: "Tech investors continue to face an extremely unsettled landscape, with more uncertainty than has existed in years," said analysts at Vital Knowledge. They added that "[s]oftware/services are a complete minefield (with stocks either surging, like Cloudflare and Teradata Corp or collapsing, like Dassault Systems, Freshworks, Rapid7 and Unity Software, on even the smallest beat or miss, while an innocuous product launch from an obscure startup can crush an entire sector)."
That mixture of rapid upside for some names and sudden downside for others highlights the sensitivity of software and services valuations to earnings and product developments, as well as to narrative shifts around AI's potential impact.
Key takeaways
- Short interest on an AI-exposed UBS basket has increased, with the average shares-out-on-loan ratio rising to over 5% from about 2% two years ago.
- Certain companies in the basket - including WPP, Hays, Randstad and Ubisoft Entertainment - show ratios above 5%.
- The UBS basket fell 39% in the past year, underperforming the Stoxx 600 index.