• Bearish investors accumulated roughly $32 billion in paper profits over seven days as the Philadelphia Semiconductor Index dropped over 12% during an eight-session slump. 
• Broad market indexes felt the ripple effect, with the S&P 500 on track for its worst weekly decline since June and the Nasdaq 100 sliding 5%. 
• Short sellers betting against AI cloud provider CoreWeave Inc. netted more than $1 billion in mark-to-market profits following distressed debt signals and rising default risks. 

Short sellers have bagged a multi-billion-dollar payday amid a retreat in semiconductor stocks driven by CoreWeave’s debt concerns. 

Short sellers recorded $32 billion in gross paper profits over a seven-day span as the Philadelphia Semiconductor Index plummeted more than 12%, S3 data showed, as quoted by Bloomberg. 

The sector benchmark, widely known as the SOX, extended its slump to eight consecutive trading days on Friday, putting it on pace to mirror its longest losing streak since 2006.

Market Anxiety Around AI Spending Persist 

The recent decline reflects growing market anxiety about elevated interest rates, lofty tech valuations, and the massive AI capital expenditures.

The selloff in chips has spilled over into broader equity benchmarks, setting the S&P 500 up for a 1.7% weekly decline, its steepest since June, while the tech-heavy Nasdaq 100 dropped 5% in the week ending October 16.

Out of the 30 companies comprising the SOX index, 20 have lost over 10% of their value since the downturn began. Coherent Corp.(COHR) led the losses with a dive of nearly 30%.

"The run up in chips was very aggressive so invariably there was going to be some consolidation or pull back," Dec Mullarkey of SLC Management told Bloomberg.

CoreWeave Shorts Yield Massive Returns

Short sellers targeting CoreWeave Inc. (CRWV), an AI-focused cloud computing firm, logged over $1 billion in gains as the company's equity dropped more than 20% over the week.

CoreWeave's debt instruments slipped into distressed territory, with credit-default swaps indicating a greater than 50% likelihood of default over the next five years.S3 data noted that a portion of the short interest in CoreWeave stems from convertible bond arbitrage strategies rather than purely directional bearish bets.

"CoreWeave specifically is going to need a new story," Joe Tigay, portfolio manager of the Rational Equity Armor Fund told Bloomberg. "It's going to need time to digest this new reality."

The SPDR S&P 500 ETF (SPY) dropped 1.2%, and the SPDR Dow Jones Industrial Average ETF (DIA) eased 0.5%. Meanwhile, the Nasdaq-100 tracking Invesco QQQ Trust (QQQ) fell 2.5% on Friday.  

 For updates and corrections, email newsroom[at]stocktwits[dot]com.<