AI frenzy boosts tech stock volatility, Nasdaq risk premium hits highest level since the dot-com bubble.

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Amid the ongoing frenzy in AI trading, the risk pricing between tech stocks and the broader market is experiencing the most extreme divergence since the internet bubble.

According to Bloomberg, the ratio between the Cboe NDX Volatility Index, which measures the cost of Nasdaq 100 index options, and the S&P 500 Volatility Index (VIX) has risen to its highest level since 2002, meaning the risk premium investors are willing to pay for tech stocks is at its highest since the bursting of the internet bubble. Despite the Nasdaq 100 index gaining about 30% since the end of March, sharp volatility has not subsided with the rally; rather, it has continued to intensify.

Before Tuesday's opening, Nasdaq 100 futures fell as much as 1.1%, while S&P 500 futures dropped just 0.2% in the same period, with tech stocks clearly underperforming the broader market. On the same day, SpaceX was officially added to the Nasdaq 100 index, viewed by the market as a catalyst that would further increase tech-stock volatility. Meanwhile, UBS's model for predicting the VIX's trajectory over the next month has risen to a ten-month high, approaching the critical threshold signaling further volatility increases, and institutional risk aversion continues to increase.

AI Trading Drives Up Tech Stock "Risk Premium"

The Cboe NDX Volatility Index is hovering around 27, while the realized 30-day volatility of the Nasdaq 100 index has risen to 29.7, the highest since the aftershocks of Trump’s tariff hike last year.

More noteworthy, the ratio between the Cboe NDX Volatility Index and VIX has now reached a 24-year high. This means relative to the overall market, investors are willing to pay a higher options premium for tech stocks to hedge potential risks.

Maxwell Grinacoff, head of US equity derivatives research at UBS, called this phenomenon "quite astonishing." He noted that since the end of last year, the logic that Nasdaq 100 volatility would remain higher than the S&P 500 has consistently held true. Additionally, leveraged ETFs in US and Asian markets continue to magnify the price fluctuations of AI and semiconductor stocks, causing price swings to become increasingly detached from fundamentals.

SpaceX Inclusion Further Amplifies Volatility

The market generally believes that SpaceX’s inclusion into the Nasdaq 100 will further elevate overall index volatility.

Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, said newly-listed companies typically have higher inherent volatility, and given SpaceX's current size and market impact, the gap in volatility between the Nasdaq 100 and S&P 500 is likely to remain elevated until SpaceX is included in the S&P 500 in the future.

Bloomberg reported that last week some investors preemptively positioned for SpaceX’s inclusion, spending about $2 million to buy options contracts to buy 1 million shares of SpaceX at a strike price of $330, betting on further price increases.

Crowded Positions, Institutions Begin to Boost Defenses

Rising volatility is driven by increasing crowding in AI trades.

Bloomberg compiled data shows that realized correlation among Nasdaq 100 components over the past month has exceeded that among S&P 500 stocks, meaning capital is increasingly concentrated in a small number of AI and tech leaders, making market structure more singular.

Grinacoff pointed out that multiple types of institutional investors—including hedge funds, systematic strategy funds, and traditional mutual funds—are persistently chasing gains in the AI sector. "Traditional mutual funds basically need to catch up with their own benchmarks." This means if AI trading starts to loosen, institutions will have increasingly limited room to keep increasing positions to absorb selling pressure, and the market may rely more on retail capital to support it.

Meanwhile, UBS’s VIX prediction model has climbed to a ten-month high, slightly below the critical threshold indicating further VIX increases, showing that institutions are continually raising expectations of future market volatility.

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