AI investors rush to hedge the trillion-dollar trade as cracks widen

The latest:

Demand for downside protection on artificial-intelligence positions is surging, with investors, traders and tech executives turning to put options, credit-default swaps and newly built compute derivatives, The Wall Street Journal reported. Stephen Solaka, a senior vice president at Gateway Investment Advisers, said his firm is seeing significant demand from clients looking to protect against losses. Many are former employees of the same tech giants that drove the rally.

Details:

• The selloff: The Nasdaq fell 2.9% on Friday, capping its worst month since March 2025, according to the Journal. Alphabet and Intel recorded some of their biggest one-day drops ever, and Intel posted its worst month since March 2025. Stock and bond prices at heavily indebted neocloud firms, including CoreWeave, also slid.
• The put trade: Put options tied to CoreWeave hit their highest volume on record this month and have stayed elevated, according to Cboe Global Markets data. Among the most popular positions are contracts expiring in 2028 that pay out if shares fall to $35. The stock traded around $55 this week.
• Credit stress: The cost of protecting against a debt default at hyperscalers Amazon, Alphabet, Microsoft, Meta and Oracle widened over the past month to the highest levels since 2021, according to Solve. Oracle’s spread widened by more than 1 percentage point, the sharpest move of the group. Solve co-founder Eugene Grinberg said there were no exceptions across the five, pointing to sector-wide concern rather than isolated credit problems.
• A new desk: Quant trading firm Jump Trading launched a trading desk for computing power, exploiting wide price gaps between providers. The desk is also structuring over-the-counter derivatives for clients seeking to hedge against a sharp collapse in compute prices, the Journal reported.
• How it works: A neocloud renting out Nvidia chips could buy a put option on hourly rental rates, giving it the right to sell compute at a set price by a set date if demand drops. Jump would take the other side, settling in cash, renting the capacity itself, or re-renting it.
• The price level: Renting Nvidia B300 chips has climbed around 56% this year to $7.56 an hour, according to a Silicon Data index. Jump could agree to buy at $4 an hour, said Dave Olsen, the firm’s president, who added that traders are scrutinizing counterparties’ creditworthiness.
• Lender pressure: Susquehanna International Group has fielded interest from data centers and privately held neoclouds seeking to hedge chip exposure, said Nick Volbi, its head of institutional prediction markets. Put trades on a compute index can be presented to banks as insurance to unlock financing, he said.
• Prediction markets: Kalshi offers contracts on which states might halt new data-center development before 2028, naming New Hampshire, Michigan and Maine. Trading in those markets has been sparse. Olsen said hedging activity overall remains dwarfed by the size of the AI trade itself.

Background:

The AI rally lifted everything from chip makers to utilities on expectations the technology would reshape the economy. Recent earnings from both large and small players fell short, prompting investors to reassess how much of the forecast is already priced in.

Between the lines:

Hedging demand concentrated in credit, not just equities, is the detail that stands out: default protection on five hyperscalers widened simultaneously to 2021 highs, and the sharpest move hit Oracle. Olsen framed the buying as precautionary rather than bearish, comparing it to home insurance. But the parallel build-out of compute derivatives suggests participants are pricing a demand drop they cannot yet date.

What’s next

Watch whether CoreWeave’s 2028 put volumes stay elevated, where hyperscaler credit spreads settle after October’s widening, and whether Nvidia B300 rental rates hold near $7.56 an hour or begin retreating.