Amid growing concerns about a potential AI-driven equity bubble, the US market has seen a sharp increase since late 2025 in the launch of new derivatives designed to hedge against a broad market crash — or the collapse of specific high-flying companies.

According to Bloomberg, structured products desks and derivatives providers are responding to rising demand for:

• downside protection on AI-linked mega caps
• tail-risk hedges
• volatility-linked instruments
• customized credit derivatives tied to concentrated exposures

The rapid expansion of hedging tools often reflects:

• elevated institutional anxiety
• extreme valuation dispersion
• crowded positioning in momentum names
• late-cycle speculative dynamics

Historically, when demand for crash protection spikes, it can mean one of two things:

📉 Smart money is preparing for instability or 📈 Hedging demand itself marks a mature phase of the rally

At the end of 2025, AI leaders were widely cited among the most stretched assets in US equities, with:

• aggressive multiple expansion
• concentrated index weight
• record inflows into AI-themed ETFs

The growth in bespoke hedging instruments suggests that investors are no longer just chasing upside — they are actively pricing in downside scenarios.

The key question now: Is this prudent risk management — or early positioning ahead of a broader repricing?

⚠️🇺🇸 #bubbles #AI #stocks #USA #derivatives #cds