As AI-driven trading continues to surge, the risk pricing disparity between technology stocks and the broader market has reached its most extreme level since the dot-com bubble era.
According to data, the ratio of the Cboe NDX Volatility Index—which measures the cost of options on the Nasdaq 100 Index—to the Cboe S&P 500 Volatility Index (VIX) has climbed to its highest point since 2002. This indicates that investors are now willing to pay the highest risk premium for tech stocks since the internet bubble burst. Despite the Nasdaq 100 Index rallying roughly 30% since late March, intense volatility has not subsided with the gains but has instead continued to amplify.
In pre-market trading Tuesday, Nasdaq 100 futures fell as much as 1.1%, while S&P 500 futures declined only 0.2%, showing tech stocks underperforming the broader market significantly. On the same day, the formal inclusion of SpaceX into the Nasdaq 100 Index was viewed by the market as a catalyst likely to further elevate tech stock volatility. Concurrently, a UBS model used to forecast the VIX's path over the next month rose to a 10-month high, nearing a critical threshold that signals further volatility increases, indicating rising institutional risk aversion.
AI Trading Inflates Tech Stock "Risk Premium"
The Cboe NDX Volatility Index is currently hovering around 27, while the 30-day realized volatility for the Nasdaq 100 Index has risen to 29.7, marking its highest level since the aftermath of the Trump-era tariff shocks.
More notably, the ratio of the NDX Volatility Index to the VIX is now at a 24-year high. This means that, compared to the overall market, investors are willing to pay a higher options premium for technology stocks to hedge against potential risks.
Maxwell Grinacoff, Head of US Equity Derivatives Strategy at UBS, described this phenomenon as "quite stunning." He noted that the logic that Nasdaq 100 volatility would persistently outpace S&P 500 volatility, a view held since late last year, continues to play out. Furthermore, leveraged ETFs in US and Asian markets are continuously magnifying price swings in AI and semiconductor stocks, causing price fluctuations to increasingly deviate from fundamentals.
SpaceX Inclusion Amplifies Volatility Further
The market widely believes that SpaceX's addition to the Nasdaq 100 will further increase the index's overall volatility.
Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, stated that newly public companies typically possess higher inherent volatility. Given SpaceX's current scale and market influence, the volatility gap between the Nasdaq 100 and the S&P 500 is likely to remain elevated until its potential future inclusion in the S&P 500.
Reports indicate that last week, some investors positioned ahead of the SpaceX inclusion, spending approximately $2 million to purchase options contracts granting the right to buy 1 million SpaceX shares at a $330 strike price, betting on further stock price gains.
Positions Grow More Crowded, Institutions Boost Defenses
Behind the persistently rising volatility is the increasing crowding of AI trades.
Compiled data shows that the realized correlation among Nasdaq 100 constituent stocks over the past month has been higher than that of the S&P 500. This implies capital is flowing more concentratedly into a handful of AI and tech leaders, making market structure more homogenous.
Grinacoff pointed out that various institutional investors, including hedge funds, systematic strategy funds, and traditional mutual funds, are persistently chasing the AI sector. "Traditional mutual funds essentially need to keep up with their benchmarks." This means that if AI trades unwind, the capacity for institutions to continue buying and absorbing selling pressure will become increasingly limited, potentially leaving the market more reliant on retail investor funds for support.
Simultaneously, the UBS model for predicting VIX movements has risen to a 10-month high, sitting just below a key threshold that signals a further rise in the VIX, showing institutions are steadily raising their expectations for future market volatility.
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