Woofun AI reports that the risk pricing gap between technology equities and the broader market has expanded to its most extreme level since the Internet bubble era, driven by concentrated institutional holdings and homogenizing market structures. This divergence, attributed to AI-driven trading dynamics, was highlighted by Li Jia of Wall Street Insights, who noted that despite significant index gains, risk-aversion sentiment continues to rise among major players.

The structural shift is quantified by Bloomberg data, which reveals that the ratio of the Cboe NDX volatility index to the S&P 500 Volatility Index (VIX) has climbed to its highest point since 2002. This metric indicates that investors are currently paying a risk premium for tech stocks that mirrors the levels seen during the dot-com crash. Although the Nasdaq 100 index has appreciated by approximately 30% since the end of March, this upward trajectory has not dampened volatility; instead, price swings have intensified. Pre-market trading on Tuesday underscored this disconnect, with Nasdaq 100 futures declining by 1.1% while S&P 500 futures fell by a mere 0.2%, demonstrating that tech stocks significantly underperformed the broader market.

A critical catalyst for this heightened instability is the official inclusion of SpaceX in the Nasdaq 100 index. Market participants view this addition as a potential amplifier for tech stock volatility. UBS’s model for predicting VIX trends over the next month has reached a 10-month high, approaching a critical threshold that suggests further increases in volatility. This modeling output keeps institutional risk-aversion sentiment elevated, as the integration of a high-growth, high-volatility entity like SpaceX into a major benchmark alters the index’s risk profile.

Specific volatility metrics further illustrate the severity of the current environment. The Cboe NDX volatility index is hovering around 27, while the 30-day volatility of the Nasdaq 100 index has risen to 29.7, marking the highest level since the impact of Trump’s tariff policies last year.

Notably, the ratio of the Cboe NDX volatility index to the VIX has now reached a 24-year high. This disparity means that, relative to the overall market, investors are willing to pay a substantially higher options premium for tech stocks to hedge against potential downside risks, reflecting deep uncertainty about future price stability.

Woofun AI data shows, Maxwell Grinacoff, head of U.S. equity derivatives research at UBS, described this phenomenon as "quite astonishing." He observed that his prediction from the end of last year—that Nasdaq 100 volatility would remain higher than that of the S&P 500—has held true to date.

Furthermore, leverage ETFs in both U.S. and Asian markets are amplifying price fluctuations in AI and semiconductor stocks. These financial instruments cause stock prices to deviate increasingly from their fundamental values, creating a feedback loop that exacerbates short-term volatility and complicates long-term valuation assessments.

The market generally believes that SpaceX’s addition to the Nasdaq 100 index will further increase the overall volatility of the index. Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, noted that newly listed companies typically exhibit higher inherent volatility. Given SpaceX’s current size and market influence, she anticipates that the volatility gap between the Nasdaq 100 and the S&P 500 will remain elevated until SpaceX is eventually included in the S&P 500. Speculative activity has already begun; last week, some investors bet on SpaceX’s inclusion by spending around $2 million on option contracts. These contracts allow the purchase of 1 million shares of SpaceX at an exercise price of $330, signaling strong expectations for further price increases.

Behind the continuous rise in volatility is the growing congestion in AI-driven trading. Data compiled by Bloomberg shows that the realized correlation among Nasdaq 100 components over the past month has been higher than that of the S&P 500. This indicates that capital is flowing more heavily into a few leading AI and tech companies, making the market structure more homogeneous. Grinacoff pointed out that various types of institutional investors, including hedge funds, systematic strategy funds, and traditional mutual funds, are continuously buying into AI-related stocks. He emphasized that "traditional mutual funds basically need to keep up with their benchmarks," forcing them to follow the crowd regardless of individual risk assessments.

This crowding creates significant institutional constraints. If AI-driven trading slows down, there will be increasingly limited room for institutions to buy more shares to absorb selling pressure. Consequently, the market may rely more on retail investor funds to support prices, introducing additional fragility. Simultaneously, UBS’s VIX model has reached a 10-month high, just below the critical threshold that signals further increases in VIX. This proximity to a key technical level indicates that institutions are raising their expectations for future market volatility, preparing for potential downside shocks.

Institutions are now positioning for elevated risk expectations, driven by a combination of structural homogeneity and speculative leverage. The convergence of these factors suggests that risk-aversion sentiment will remain a dominant theme in the near term. This marks a distinct shift from previous periods of tech optimism, where volatility was often ignored in favor of growth narratives.