Are Hedge Funds Still Bullish on AI Stocks?

The momentum trade in the technology sector is undergoing a sharp correction, with high-beta momentum baskets experiencing their most severe drawdown in five years. Vinny Lin, co-head of Prime Insights and Analytics at Goldman Sachs, notes that tech-focused hedge funds have aggressively reduced long positions, shifting from hyperscalers to semiconductor and hardware infrastructure providers. While AI remains a foundational tech cycle, the trade had become excessively crowded, with net allocations to global semiconductors doubling to 24% in June before retreating to 18%. Despite this de-risking, hedge fund performance remains robust, supported by low stock correlations that favor active stock picking. Investors are currently navigating a healthy market reset characterized by reduced leverage and a decline in macro hedging. Future market direction depends on mega-cap earnings and whether AI capital expenditure translates into sustainable revenue and profit growth.