Analysis: Traders lose nearly $52 million on AI stock bets amid crash fears

Traders lost nearly $52 million on leveraged AI and chip stock bets in 10 minutes on Saturday while Wall Street was closed. Roughly $38 million of Saturday's losses hit traders betting on higher prices. CNN's Fear & Greed Index sank to 18 on Friday, indicating extreme fear, after the Nasdaq fell 4.5% for the week. The reading came one day before the 39th anniversary of Black Monday, while predictions of a crash spread online.

CNN's Fear & Greed Index measures investor sentiment from 0 to 100 using seven equally weighted market signals, each compared with recent history. Market momentum compares the S&P 500 with the index's average over the past 125 trading days. Stock price strength compares the number of New York Stock Exchange stocks reaching 52-week highs with the number reaching 52-week lows. Stock price breadth compares trading volume in rising and falling stocks through the McClellan Volume Summation Index. The options signal measures purchases of puts, bets on falling prices, against calls, bets on rising prices, using a five-day average. Market volatility compares the VIX with the VIX's 50-day average. Safe-haven demand compares stock performance with Treasury bond performance over the past 20 trading days. Junk bond demand measures the additional yield investors require for riskier company bonds rather than safer, investment-grade bonds.

Investing.com reported that the Philadelphia Semiconductor Index fell 11.4% for the week, the index's worst weekly performance since April 2025. However, the Dow rose 0.7% for the week. CoreWeave, a cloud firm that rents out AI computing power, fell about 25%. CoreWeave's bonds reached new lows amid a broader glut of AI debt.

Hot inflation data revived bets on a Federal Reserve rate increase, which would raise borrowing costs. Michael O'Rourke of Jones Trading said hot inflation data suggests interest rates will remain higher for longer. CME puts information technology at roughly 39% of the S&P 500. Index-fund holders are heavily exposed to information technology.

The Federal Reserve records that the Dow lost 22.6% on October 19, 1987. Trading halts to limit a market crash did not exist then. Today, an S&P 500 decline of 7% or 13% pauses trading for 15 minutes. An S&P 500 decline of 20% closes markets for the day. Those trading halts do not apply to perpetual futures, crypto-exchange contracts that track stock prices around the clock. Exchanges forcibly close leveraged bets when prices fall. Each forced sale can push prices lower.

S3 Partners data cited by Bloomberg showed that short sellers made about $32 billion on chip stocks in seven days. Dec Mullarkey of SLC Management said the aggressive rise in chip stocks made some consolidation or decline inevitable. Fundstrat's Mark Newton has urged investors to buy technology stocks after the decline while diversifying investments. Monday's opening will show whether weekend selling reflected real pressure or thin trading. The larger test is whether concerns about AI debt spread beyond a few heavily indebted companies.