Some short sellers are seeing opportunity in this tech mania. How they're spotting fake AI stocks

Short sellers are increasingly hunting for cracks beneath the stock market's artificial-intelligence frenzy, betting that some of the speculative excesses, copycat "AI" branding and vulnerable legacy business models could eventually unravel.

As billions of dollars flood into data centers, semiconductors and AI software, some short sellers argue the rally is beginning to resemble previous speculative manias, where weaker companies rushed to attach themselves to the hottest market theme in hopes of attracting capital and retail traders.

"A rising tide lifts all boats, and a twisting tide takes down a lot of names in the same neighborhood," Joyce Meng, founder of Fact Capital, said during a panel discussion at Sohn Investment Conference this week in New York. "Especially in the market where you have an AI frenzy, everyone trying to go jump into that, one of our favorite themes is fake AI."

Meng said she likes to run screens to identify companies that abruptly rebranded themselves to capitalize on the boom, including firms that suddenly changed their names to include the word "AI."

One target that Meng identified using the "AI name change" screen is Rezolve AI, which changed its name from Rezolve Group Limited in 2023. After digging deeper into the company, Meng said she saw multiple red flags around the business and predicted the stock to fall 60%.

Meng also pointed to a Chinese landscaping company that later reinvented itself as an AI server business. During her firm's research, she said the company appeared to have photoshopped products into marketing materials on its website and claimed to have hired employees listed on LinkedIn that turned out, according to Fact Capital's checks, to not actually work there.

The examples echo some of the increasingly surreal corporate pivots emerging during the AI boom. Allbirds, the struggling shoemaker, said last month it would rebrand itself as "NewBird AI" and shift toward compute infrastructure. The stock initially surged 582% following the announcement powered by massive retail flows before giving back most of those gains within weeks.

The Allbirds initial surge and the overall jump in stocks shows what these short sellers are up against and why their numbers have dwindled as this bull market marches on. They get their name because they borrow stock and then sell those shares, in the hopes of buying back at lower prices and returning them, capturing the difference. If a name moves higher, it can force them to buy back the stocks in order to avoid big losses.

"Trying to find more excess, where people are claiming they have it but they actually don't — for us, that's a really rich ideation opportunity," Meng said.

Fact Capital has generated positive returns from short positions since launching in 2019. Meng said she likes pairing speculative "fake AI" shorts with secular decliners across the technology industry that tend to be less volatile. She also highlighted business-process outsourcing firms and contact-center operators, particularly in India, as areas potentially vulnerable to AI disruption.

Rezolve AI declined to comment. The company reported $60 million in first-quarter revenue, surpassing its total revenue for all of 2025.

Nvidia bears

Some bearish investors are beginning to directly challenge the market's biggest winners. Culper Research disclosed a short position Wednesday in Nvidia, arguing the chipmaker faces underappreciated risks tied to China exposure.

"We recognize the stakes. Nvidia holds the single largest market capitalization on the planet, while CEO Jensen Huang has been celebrated as a generationally talented operator," Culper wrote in its report. "We are short Nvidia for one reason: the company has a significant China problem."

The short seller alleged that despite U.S. export restrictions imposed in April 2025, more than 20% of Nvidia's fiscal 2026 compute revenue remained tied to China through illegal GPU diversion and intermediaries in Southeast Asia. Nvidia has publicly said its China business effectively dropped to zero following the restrictions.

Nvidia didn't immediately respond to CNBC's request for comment.

Still, short selling in a bull market is no easy task. Major U.S. stock indexes have repeatedly climbed to record highs despite the ongoing war in the Middle East and broader macroeconomic uncertainty, as investors continue pouring money into semi makers and megacap companies tied to the AI boom.

These short sellers joined Michael Burry, who has emerged as one of Wall Street's most vocal AI skeptics. The famed investor recently warned that investors should "reject greed" and for any stocks going parabolic "reduce positions almost entirely."

Historical echoes

Many are drawing parallels between today's AI-driven rally and the speculative excesses that preceded the collapse of many internet stocks during the dotcom era. Blue Orca Capital CIO Soren Aandahl said investors often confuse transformative technologies with guaranteed investment success.

"Railroads changed the world. The internet changed the world," Aandahl said at the panel moderated by Jim Chanos. "But many of the early purveyors of these technologies went completely bust."

Chanos, one of Wall Street's best-known short sellers, pointed to the dot-com era as a cautionary example. Chanos said U.S. economic growth and corporate profit growth in the decade following Netscape's 1995 debut were little changed from the prior decade despite the internet's transformative impact.

"There's no doubt the internet changed many, many things," Chanos said. "It didn't have a super huge impact" on aggregate economic growth.

Netscape, a pioneering web browser, was one of the defining symbols of the dot-com bubble before being acquired by AOL in 1999.