- 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 wiped out all their net buying in global artificial intelligence (AI) stocks since the beginning of 2025 in just five trading sessions, as investors cut their exposure to the technology sector.
The reversal comes against the backdrop of around $20 billion in technology stock sales over two weeks. The scale of the pullback raises a question for investors: is the AI trade beginning to crack, or are hedge funds simply booking profits after a prolonged rally and reducing positions in an increasingly crowded market?
-
Indian Markets Turning Corner After Two Tough Years, Says Sandeep Tandon -
NDTV Profit Ignite 2026: Experts See Opportunity In Equities, Stay Bullish For Long-Term -
Buy Right, Sit Tight Does Not Work for Individual Stocks, Says Dinshaw Irani -
'Worst Is Behind': Quant MF Sees Market Bottom, Flags 'Extreme Euphoria' In Midcaps -
India's Mutual Fund Industry Could Become A $1 Trillion Opportunity, Say Fund Managers -
'Foreign Investors Are Baraatis': Raamdeo Agrawal's Take On LTCG Tax -
Stay Invested Through Market Cycles: Raamdeo Agrawal at NDTV Profit Ignite -
Ramesh Damani Remains Bullish On India For Next 20-30 Years, Sees Bargains Amid Market Weakness -
CAS Came After A Long Consultation Process: SEBI Chairman Tuhin Kanta Pandey AT NDTV PROFIT IGNITE -
Aim To Cut FPI Onboarding Time From Mth To Five Days: SEBI Chairman Tuhin Kanta Pandey AT NDTV PROFI
Data from Goldman Sachs' prime brokerage desk, highlighted in several media reports, shows that hedge funds were net sellers of global AI stocks for five consecutive sessions. Their selling erased all the net purchases accumulated since the start of 2025.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
Most of the selling came from existing holdings. The pace was 3.5 times that of fresh short positions, indicating that funds were more focused on unwinding existing investments than opening new bets against AI stocks.
The selling was not confined to AI-linked shares. Goldman Sachs' prime brokerage desk recorded around $20 billion in technology stock sales over two weeks, Reuters reported on October 26. That was close to the $23 billion recorded during a major unwinding in July.
ALSO READ | AI Race Heats Up: DeepSeek Drops An Autonomous 'Super-Agent' To Take On Claude
The extent of the pressure was also visible in hedge fund returns. Goldman Sachs' basket of stocks favoured by hedge funds fell 4.2% on October 22, its biggest single-day decline since 2011.
Morgan Stanley data cited by Steno Research showed another indication of the retreat. Hedge funds reduced their overall exposure by around 7.8%, the biggest cut in the series dating back to 2016.
Companies supplying the infrastructure for the AI build-out have also taken a hit. 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 fell 15.6% in October. The S&P 500 declined less than 1% over the same period.
Why The Pullback
Investors are reassessing the valuations of AI companies and the returns they can expect from the huge capital expenditure planned by technology majors.
The investment cycle has been fuelled by expectations of sustained demand for advanced chips, data centres and computing infrastructure. But the money being committed to building that infrastructure has brought the question of returns into sharper focus. Investors want to know whether revenue from AI products and services will justify the expenditure.
ALSO READ | 'AI Dollar Is Here': Deutsche Bank Flags Risks To US Currency Amid AI-driven Equity Selloff
Concerns about the returns from AI spending were central to the latest market volatility, Reuters reported on October 26, citing a Goldman Sachs note.
Meta's share price reaction offered another example of this concern. Its shares fell 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.
The decline came despite the strong earnings report. Investors are increasingly looking beyond demand for AI infrastructure and assessing whether companies can turn their investments into cash flows. The additional capital required to fund these plans, and the possibility of relying on external financing, could also weigh on sentiment towards the spending cycle.
Valuations have added to the pressure. AI-linked stocks have attracted substantial investor interest over the past two years, with expectations of rapid earnings growth supporting premium valuations.
But when too many investors hold similar positions, a change in growth expectations or risk appetite can prompt a rush to reduce exposure. The latest selling, concentrated in existing holdings rather than fresh short positions, reflects the extent to which hedge funds have been cutting their investments.
Reset Or Retreat?
The scale of the selling does not necessarily mean hedge funds have walked away from technology stocks.
Technology still accounted for 23.5% of Goldman Sachs' global prime book, according to data cited by The Economic Times. The allocation was in the 90th percentile of the past five years.
The figures suggest that funds have cut positions sharply but continue to have significant exposure to the sector.
That distinction is important when assessing the latest reversal. Selling by hedge funds does not, on its own, establish that demand for AI technology is weakening or that the longer-term investment opportunity has disappeared. The reduction could also reflect profit-taking, a lower appetite for risk and a correction in valuations following a prolonged rally.
What happens next will depend, in part, on whether companies can generate sustainable revenue growth, margins and cash flows from their rising capital expenditure. If the money coming in from AI fails to keep pace with the investment, the current correction could turn into a broader reassessment of valuations.
ALSO READ | Using Claude To Write? Top Models Will Now Use Text Watermarking As Identifiers
For now, the figures show a sharp reversal in hedge fund positioning, not conclusive evidence that the AI trade is over.
The focus is shifting from the amount companies are investing in AI to whether that spending will deliver the returns investors have priced into their shares.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
