- Hedge funds reversed all net buying in global AI stocks since early 2025 in five sessions
- Around $20 billion tech stock sales occurred in two weeks, matching July's major unwind
- AI-related chip stocks lost over $700 billion in market value in under two weeks
Hedge funds have reversed all their net buying in global artificial intelligence (AI) stocks accumulated since the beginning of 2025 in just five trading sessions, according to data from Goldman Sachs' prime brokerage desk.
The rapid reversal, alongside around $20 billion in technology stock sales over two weeks, has raised questions about whether the AI trade is beginning to crack or investors are simply reducing exposure to an increasingly crowded market.
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Goldman Sachs' data, highlighted by several media reports, shows that hedge funds net sold global AI stocks for five consecutive sessions, wiping out their cumulative buying since the start of 2025. The selling was concentrated in existing holdings, reportedly running at 3.5 times the pace of fresh short positions. This suggests that funds have been more focused on booking profits and reducing risk than actively betting against the sector.
The broader technology sell-off has been equally big. Goldman Sachs' prime brokerage desk recorded around $20 billion in technology stock selling over two weeks, Reuters reported on October 26. The amount was close to the $23 billion in selling recorded during a major unwind in July.
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The pressure was also visible in hedge fund performance. Goldman Sachs' basket of stocks favoured by hedge funds fell 4.2% on October 22, its steepest single-day decline since 2011.
Separately, data from Morgan Stanley cited by Steno Research showed hedge funds cutting around 7.8% of their overall exposure, marking the biggest reduction in the series going back to 2016.
The sell-off has extended to companies at the centre of the AI infrastructure build-out. Samsung Electronics, SK Hynix, Micron and SanDisk have collectively lost more than $700 billion in market value in less than two weeks, according to the figures provided. Chip stocks declined 15.6% in October, compared with a fall of less than 1% in the S&P 500, pointing to the disproportionate pressure on the AI-linked technology trade.
Why Are Hedge Funds Pulling Back From AI Stocks?
The selling comes as investors reassess the valuations attached to AI companies and the returns expected from the enormous capital expenditure planned by technology majors. The AI investment cycle has been driven by expectations of sustained demand for advanced chips, data centres and computing infrastructure.
However, the market is increasingly focused on whether the revenue generated by AI products and services can justify the cost of building that infrastructure.
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Concerns around the eventual payoff from AI spending were central to the latest market volatility, Reuters reported on October 26, citing a Goldman Sachs note. The report also highlighted the sharp fall in Meta shares, which declined around 10% in the week after the company reported strong earnings but indicated that it would need to raise additional capital for its AI investments.
That reaction underlines a change in investor priorities. Strong earnings and rising demand for AI infrastructure may no longer be sufficient to support valuations if companies cannot demonstrate how quickly their investments will translate into cash flows. Higher capital requirements and the possibility of relying on external financing could also make investors more cautious about the sustainability of the spending cycle.
Valuations add to the uncertainty. AI-linked stocks have attracted major investor interest over the past two years, with expectations of rapid earnings growth supporting premium valuations. When positioning becomes crowded, even a reassessment of growth expectations or a shift in risk appetite can trigger sharp selling. The speed of the latest reversal suggests that investors are increasingly unwilling to maintain large positions without clearer evidence of returns.
Is The AI Trade Breaking Or Undergoing A Reset?
The available positioning data does not yet point to a wholesale exit from technology. The Economic Times, citing Goldman Sachs' prime brokerage data, reported that technology still accounted for 23.5% of the bank's global prime book, placing the allocation in the 90th percentile of the past five years. Hedge funds have therefore reduced exposure sharply, but remain significantly invested in the sector.
This distinction is important. A sharp unwinding of hedge fund positions does not necessarily mean that demand for AI technology is weakening or that the long-term investment opportunity has disappeared. It could instead reflect profit-taking, lower risk appetite and a correction in valuations after a prolonged rally.
However, the next phase of the AI trade will depend on whether companies can convert their rising capital expenditure into sustainable revenue growth, margins and cash flows. If monetisation fails to keep pace with investment, the current correction could develop into a more fundamental reassessment of AI valuations.
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That said, the evidence points to a major positioning reset, accompanied by growing scrutiny of the economics of AI. The trade may not be over, but the market is beginning to ask a more difficult question i.e. not how much companies are spending on AI, but how much they can ultimately earn from it.
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