ServiceNow draws hedge fund shorts as AI concerns dent sentiment, J.P. Morgan says

April 22 (Reuters) – Software firm ServiceNow has become a popular short among hedge funds, analysts at J.P. Morgan said on Wednesday, as investor sentiment toward the sector remains fragile amid concerns over artificial intelligence-driven disruption.

Earlier this year, there was a sharp worldwide selloff in software stocks, as investor concerns that AI poses an existential threat to legacy businesses deepened, despite reassurances from industry giants and analysts that such fears are overblown.

Here are some details from the note:

• According to data compiled by LSEG, ServiceNow’s short interest stands at about 2.9%, while the stock has fallen roughly 35% so far this year.

• For investors with a short position on ServiceNow, “we recommend buying short-dated call spreads funded by selling OTM puts as a hedge ahead of tonight’s earnings,” J.P. Morgan said.

• Short-dated call spreads are options trades that let investors bet on near-term moves in a stock, while keeping costs low and limiting potential gains.

• The brokerage added that with sentiment around software remaining weak since the February sell-off on AI-related concerns, a single earnings report was unlikely to materially shift the narrative or lift the overhang.

(Reporting by Manya Saini in Bengaluru; Editing by Shinjini Ganguli)