Unhedged – "What Are the Hedge Funds Shorting?"
Date: November 25, 2025
Hosts: Katie Martin (Markets Columnist, Financial Times), Robin Wigglesworth (Editor, FT Alphaville)
Episode Overview
In this episode, Katie Martin and guest co-host Robin Wigglesworth dive into the current mood in financial markets—specifically, how hedge funds are positioning themselves amid anxieties over an AI-driven stock market bubble. They discuss the mechanics of "shorting," which sectors and companies are drawing the attention of short sellers, and why AI excitement is echoing into adjacent markets, especially corporate debt and utilities. The hosts unpack what these hedge fund moves may signal for the rest of the financial world, with a tone that's both skeptical and playfully nerdy.
Key Discussion Points & Insights
1. Hedge Fund Shorting: The Basics and Risks
[04:09–06:12]
- Katie and Robin open by demystifying how hedge funds "short" stocks, either through borrowing shares and selling them or through options like "puts."
- Shorting is especially risky:
"If you short something and it goes up, you get annihilated," – Katie [05:02]
2. Are Hedge Funds Betting Against the AI Boom?
[05:22–07:03]
- While anxiety over an "AI bubble" is palpable, large hedge funds aren't yet shorting the biggest AI names (Nvidia, Apple, Amazon) in a major way.
- Instead, they're "dabbling around the edges"—targeting weaker or more peripheral companies that are AI-adjacent.
"They're nibbling, aren't they?" – Katie [06:12]
3. Notable Shorts: Oracle and Credit Default Swaps
[07:03–08:51]
-
Oracle stands out as a tech giant with rising short interest and increased bets against its debt via credit default swaps (CDS).
-
The mention of CDS—once associated with the eurozone debt crisis—raises eyebrows:
"These are accursed words; you never want to hear about CDS in relation to anything, ideally," – Katie [07:39]
-
While no one is betting on Oracle's bankruptcy, the uptick in CDS signals concern about its creditworthiness.
4. AI Frenzy Extends to Corporate Debt Markets
[09:19–11:00]
- Tech companies' corporate debt issuance, especially investment-grade bonds, has soared—up ~80% this year.
- The funding primarily supports data centers for AI, and this surge has ripple effects on liquidity and competition in the wider bond market.
"It's like this big fat elephant walked into the bond market, squatted and kind of starts commanding attention from everything else." – Robin [10:42]
5. Shorting Utilities: The Knock-On From AI
[11:00–12:49]
- Short bets against US utilities have hit record highs since at least 1995.
- Utilities, usually dull and low-risk, are borrowing substantially to build infrastructure to support AI-data centers—but there's risk if AI demand or data intensity is overestimated.
"The danger is...some of these utilities borrow money and bet the farm on AI and then are left holding the bag when actually it turns out that this isn't that data intensive..." – Robin [12:23]
6. Are Markets Ready for a Correction?
[12:49–14:46]
- There's a sense that markets are "swirling around the plug hole," with uncertainty about when, not if, a correction will hit.
- Hedge funds are still largely invested (long) in AI majors, but seem to be preparing a "playbook" for when the "bubble" bursts.
"Most hedge funds are still yoloing into technology stocks and AI stocks in general...What is changing is that you can see they're starting to map out a playbook of what they might start doing when eventually things do crumble..." – Robin [13:43]
7. Should You Follow Hedge Fund Moves?
[16:08–17:54]
- Hedge fund managers are smart, but "move as a herd" and are not always market leaders.
- The timing of any crash is unpredictable, but where the pain will be felt is clearer: adjacent sectors and less robust players.
"We shouldn't look to them to understand the timing of when the AI bubble might burst, but more to understand how it might start playing out." – Robin [17:33]
8. Cautionary Tales: Michael Burry and The Perils of Shorting
[18:11–19:38]
- Citing Michael Burry’s experience (of "Big Short" fame), the hosts emphasize how difficult, and often unprofitable, short selling can be—even for someone once lauded for prescience.
"It's just very hard being short a market that generally speaking does go up." – Robin [19:18]
Notable Quotes & Memorable Moments
-
On AI Investing Mania:
"Even if you believe that it is transformational, even if it does prove transformational, prices can still be stupid."
— Robin Wigglesworth [15:56] -
On Journalist Skepticism:
"The advantage of being a journalist is we have no skin in the game. We'll be proven right at some point and then we'll try not to be too smug about it because frankly, everybody else is still richer than us."
— Robin [15:18] -
On Dot-Com Lessons:
"Dot com. Everything was right. Everything that people said in 1999 was completely right, but people still lost an ungodly amount of money in the years that came afterwards."
— Robin [15:56]
Important Timestamps & Segments
| Timestamp | Segment | Details | |-------------|--------------------------------------|-------------------------------------------------------------------------| | 04:09–06:12 | Short Selling Explained | Why and how hedge funds short stocks, with warnings about risk. | | 07:03–08:51 | The Oracle Case & Credit Default Swaps| Rising short interest and hedging against Oracle, resurgence of CDS. | | 09:19–11:00 | Tech Debt Issuance | Boom in investment grade tech bonds; implications for the wider market. | | 11:00–12:49 | Utilities Under Pressure | Explaining record-high shorts in normally safe, boring utilities. | | 13:36–14:46 | Bubble Playbook | How and when hedge funds might move against the bubble. | | 16:08–17:54 | Should We Follow The Hedge Funds? | How hedge funds think, and why they're not always first movers. | | 18:25–19:38 | Michael Burry & The Challenge of Shorts | Cautionary tale about famous short sellers. |
The "Long Short" Segment
[21:06–22:36]
- Robin's Short: Bloom Energy, a highly-valued (yet barely profitable) data center fuel cell company, seen as swept up in the AI craze—"to preposterous levels."
"Bloom Energy is my short... there will be a crash." – Robin [21:44]
- Katie's Short: "Crypto maxis," for not responding to her negative crypto column—commenting humorously on their silence amid Bitcoin's price dip.
Note: "This is not investment advice and we are terrible at this." – Katie [22:02]
Conclusion
Robin and Katie employ a mix of deep market insight and tongue-in-cheek self-awareness to dissect where hedge funds are currently placing their bets. While the "big short" against AI leaders hasn’t materialized, adjacent and structurally weaker sectors—like utilities and corporate bonds—are drawing attention from short sellers as the AI bubble’s potential risks multiply. The episode underscores both the dangers and inevitabilities of market cycles, and why even the smartest investors are often navigating with as little certainty as everyone else.