Hedge Funds Retreat from AI Stocks
TREE NEWS reports: Hedge funds have net sold global AI-related stocks for five consecutive trading sessions, wiping out all of their cumulative net purchases since the start of 2025. The selling, which totaled roughly $20 billion over the past two weeks, was primarily executed by reducing existing long positions rather than adding new short bets. Long sales outpaced new AI short positions by about 3.5 times.
The impact was stark: Goldman’s basket of most popular hedge fund holdings fell 4.2% on October 22, its worst single-day performance since 2011. Meanwhile, Morgan Stanley data cited by Steno Research showed overall hedge fund equity exposure was cut by approximately 7.8%, the largest reduction since the bank began tracking the metric in 2016.
Memory Chip Stocks Hit Hard
The selloff was particularly brutal for memory chip makers. Samsung, SK Hynix, Micron, and SanDisk collectively lost more than $700 billion in market value in less than two weeks. The Philadelphia Semiconductor Index tumbled 15.6% in October, while the S&P 500 fell less than 1% over the same period, highlighting the concentrated pain in the AI supply chain.
The magnitude of the unwind suggests that hedge funds are aggressively de-risking after a prolonged period of heavy concentration in AI-related names. The fact that long sales dominated new shorts indicates that funds are not necessarily betting against AI but rather locking in profits and reducing exposure amid rising volatility and macroeconomic uncertainty.
Implications for the Broader Market
The AI trade has been a primary driver of equity market gains over the past two years, and any sustained pullback could have ripple effects across the technology sector and beyond. The sharp decline in memory chip stocks is particularly concerning, as these companies are key suppliers for AI data centers and their performance is often seen as a bellwether for the health of the AI infrastructure buildout.
For crypto markets, the selloff in AI stocks could dampen sentiment for AI-related tokens and decentralized compute networks, which have benefited from the broader AI narrative. However, if the rotation out of AI stocks leads to a search for alternative high-growth assets, some capital could flow into crypto markets.
Forward-Looking Perspective
Investors will be watching upcoming earnings reports and economic data for signs of whether this is a temporary pullback or the start of a deeper correction. The concentration of hedge fund positioning in AI stocks remains high, and further unwinding could exacerbate downside pressure. With global interest rates remaining elevated and geopolitical risks persisting, the appetite for high-valuation tech stocks may remain subdued in the near term. For now, the AI trade is facing its most significant test since it began.
