Hedge funds intensified their appetite for technology equities last week, moving to accumulate names tied to artificial intelligence and the chip supply chain at a rate Goldman Sachs characterizes as the quickest in almost three months. A Goldman Sachs note to clients, circulated late on Friday, highlighted the sector as a top target for speculators.
Goldman Sachs said companies with potential to benefit from AI advancements - in particular semiconductor and chip manufacturers - have largely sidestepped the broader economic headwinds associated with the Iran war. That shift in sentiment was reflected across several trading behaviors among hedge funds.
How hedge funds positioned for AI optimism
- Technology stocks were bought in every major region except Europe.
- In dollar terms, buying was led by North America and Asia emerging markets.
- Funds repurchased stock to close earlier positions that had bet on price declines.
- Managers also established so-called long positions, reflecting expectations that those assets will rise in value.
- Buying activity centered on semiconductor-related manufacturers and software companies.
- At the same time, funds sold shares of communications equipment and IT services providers.
Goldman Sachs noted that hedge fund portfolios now carry their largest technology weight relative to the MSCI World Index in more than five years. The bank also reported that bets on global information technology stocks are hovering at record highs for the dataset it began tracking in 2016 under its Prime Brokerage coverage.
These flows indicate a concentrated preference for areas of technology tied to AI development and chip production, with managers both covering prior short exposure and initiating fresh longs. While the positioning is strong across multiple regions, Europe stands out as the lone major area where technology was not bought during the week in question.
Key takeaways
- Hedge funds increased technology allocations at the fastest pace in nearly three months, led by AI-related names and semiconductors.
- Purchasing was concentrated in North America and Asia emerging markets; Europe saw no net buying of technology shares.
- Portfolios now show the largest technology weight versus the MSCI World Index in over five years, and exposure levels are at the high end of the series Goldman began tracking in 2016.
Risks and uncertainties
- Concentrated positioning in technology, particularly semiconductor and AI-linked stocks, increases sector-specific exposure for hedge fund portfolios.
- Regional differences in buying patterns - notably the absence of European purchases - introduce geographical concentration risks.
- Rapid covering of short positions and the addition of new longs can increase volatility if sentiment shifts.