Key Takeaways
- • Hedge funds erased all net purchases of global AI stocks accumulated since the beginning of 2025 in just five trading sessions, according to Goldman Sachs prime brokerage data.
- • Roughly $20bn in technology stock sales over two weeks approached the $23bn recorded during a major unwinding in July, with selling of existing longs outpacing new short selling by 3.5 times.
- • Goldman Sachs' basket of hedge fund favourites fell 4.2% on 22 October, its steepest single-day decline since 2011, while Morgan Stanley data showed overall hedge fund exposure cut by about 7.8%, the largest reduction since its series began in 2016.
- • Samsung Electronics, SK Hynix, Micron and SanDisk collectively lost more than $700bn in market value in under two weeks, with semiconductor shares down 15.6% in October versus less than 1% for the S&P 500.
- • Technology still accounts for 23.5% of Goldman's global prime brokerage book, in the 90th percentile of the past five years, suggesting a reduction in risk appetite rather than a full retreat from AI.
Summary
Hedge funds have erased all their net purchases of global artificial intelligence stocks accumulated since the beginning of 2025 in just five trading sessions, as concerns over elevated valuations and the sustainability of AI investment prompted a sharp reduction in technology exposure, according to Goldman Sachs prime brokerage data.
The reversal follows approximately $20bn in technology stock sales over two weeks, approaching the $23bn recorded during a major unwinding in July. Selling of existing long positions outpaced new short selling by 3.5 times, suggesting managers have prioritised reducing exposure over establishing outright bearish positions against the sector.
The impact on hedge fund portfolios has been significant. Goldman Sachs' basket of stocks favoured by hedge funds fell 4.2% on 22 October, its steepest single-day decline since 2011. Separate Morgan Stanley data indicated that hedge funds reduced their overall exposure by approximately 7.8%, the largest reduction recorded since the series began in 2016.
AI infrastructure stocks have been particularly hard hit. Samsung Electronics, SK Hynix, Micron and SanDisk collectively lost more than $700bn in market value in less than two weeks. Semiconductor shares declined 15.6% in October, compared with a fall of less than 1% for the S&P 500, as investors questioned whether substantial AI capital expenditure would translate into sustainable earnings and cash flows.
Despite the selloff, hedge funds retain significant technology exposure, with the sector accounting for 23.5% of Goldman Sachs' global prime brokerage book, placing allocations in the 90th percentile of the past five years. The positioning shift suggests a broad reduction in risk appetite rather than a complete retreat from AI-related investments, as managers reassess crowded trades and focus more closely on company fundamentals and the profitability of AI infrastructure spending.
The reversal follows approximately $20bn in technology stock sales over two weeks, approaching the $23bn recorded during a major unwinding in July. Selling of existing long positions outpaced new short selling by 3.5 times, suggesting managers have prioritised reducing exposure over establishing outright bearish positions against the sector.
The impact on hedge fund portfolios has been significant. Goldman Sachs' basket of stocks favoured by hedge funds fell 4.2% on 22 October, its steepest single-day decline since 2011. Separate Morgan Stanley data indicated that hedge funds reduced their overall exposure by approximately 7.8%, the largest reduction recorded since the series began in 2016.
AI infrastructure stocks have been particularly hard hit. Samsung Electronics, SK Hynix, Micron and SanDisk collectively lost more than $700bn in market value in less than two weeks. Semiconductor shares declined 15.6% in October, compared with a fall of less than 1% for the S&P 500, as investors questioned whether substantial AI capital expenditure would translate into sustainable earnings and cash flows.
Despite the selloff, hedge funds retain significant technology exposure, with the sector accounting for 23.5% of Goldman Sachs' global prime brokerage book, placing allocations in the 90th percentile of the past five years. The positioning shift suggests a broad reduction in risk appetite rather than a complete retreat from AI-related investments, as managers reassess crowded trades and focus more closely on company fundamentals and the profitability of AI infrastructure spending.
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