• Goldman Sachs (GS) reports hedge funds slashed technology exposure at the fastest rate since at least 2016, with the Nasdaq 100 plunging 5.5% last week.
  • The selloff was amplified by crowded AI trades and a macro reality check, as inflation concerns and rising financing costs rattled investors.
  • Despite the retreat, tech still accounts for 23.5% of hedge fund portfolios, near historically elevated levels.

Hedge funds offloaded technology stocks at the fastest pace in at least a decade during the five trading sessions ending October 15, according to prime-brokerage data from Goldman Sachs. The Nasdaq 100 tumbled 5.5% over the same period, with semiconductor shares experiencing the largest dollar-value selling. Yet technology remains a hefty 23.5% of hedge fund portfolios—close to record highs—suggesting the move is more a tactical deleveraging than a wholesale exit from the sector.

The unwind, first reported by Bloomberg, comes as managers rushed to reduce exposure to crowded AI trades. Global fundamental long-short funds—which bet on both rising and falling stocks—lost 2.9% through October 15, though they remain up 14.3% for the year. Goldman noted that managers sold global AI stocks for six consecutive sessions, marking the longest streak of AI-related selling since the bank began tracking the data.

A Macro Reality Check

The trigger was a combination of hotter-than-expected U.S. inflation, expensive financing, and growing doubts about the timing of AI profits, according to sources familiar with the matter. "This is a crowded-trade unwind meeting a macro reality check, rather than a fundamental rejection of AI," said Bruno Schneller, managing partner at Erlen Capital Management. He warned that seemingly diverse hedge fund portfolios had been trading the same underlying theme, amplifying the shock when positions were unwound.

The stress spread beyond equities. CoreWeave (CRWV), a data-center operator that has aggressively financed its AI infrastructure buildout, saw its bonds sell off sharply, pushing yields above 15%. Broadcom (AVGO) also faced renewed equity selling. The yield spike at CoreWeave illustrates how concerns about AI investment returns are spilling into credit markets, raising questions about the cost of debt-funded expansion.

Selling Pressure Eases, but Risks Remain

By Thursday, the pace of selling had slowed. Goldman reported that combined selling of long positions and covering of short bets was roughly half the dollar volume seen on Wednesday. That suggests a slowdown in risk reduction—not necessarily the end of the selloff. On Monday, the Nasdaq Composite rose about 1% in early trading, offering a tentative sign of stabilization, though it was an intraday move and not a closing result.

Asia-focused stock pickers also felt the pain, losing 6.8% in the first half of October, according to Goldman data cited by Reuters (TRI). South Korea's KOSPI fell 8% on Thursday to a six-month closing low, while Taiwanese stocks dropped more than 3%, highlighting how a reassessment of U.S. AI spending and interest rates can ripple through global semiconductor supply chains.

What to Watch

The key question is whether AI-related earnings and cash generation can justify infrastructure spending at prevailing financing costs. For now, the evidence points to a positioning-driven correction rather than a collapse in AI demand. But heavily financed businesses remain exposed if investment returns take longer than expected. Investors will be watching upcoming fund-flow reports, inflation data, and credit spreads for signs of whether the stress remains contained or spreads further.

A Goldman Sachs spokesperson declined to comment beyond the bank's published prime-brokerage data. CoreWeave and Broadcom did not immediately respond to requests for comment.