Key Takeaways:
Hedge funds dumped US technology stocks at the fastest pace on record, with semiconductor names bearing the brunt of a selloff that has erased 10% from the sector since early June.
Hedge funds cut US technology stock exposure by a record 10% over the past eight weeks, Goldman Sachs data shows, as the semiconductor selloff deepened.
"The persistence and magnitude of selling since early June point to significant length reduction by tech investors, and some signs of capitulation are starting to emerge," the bank's prime brokerage desk said in a note.
The technology sector has dropped roughly 10% since early June, with the VanEck Semiconductor ETF falling nearly 9% last week alone — its worst weekly performance since March 2025. Hedge funds were net sellers in six of the past eight weeks, cutting long positions and adding short bets, according to Goldman. Hardware, storage and IT services led the outflows, while semiconductors and software also saw net selling.
The selloff has shifted investor attention away from AI infrastructure plays even as the sector's long-term fundamentals remain intact, Goldman said. Wall Street strategists at Morgan Stanley, JPMorgan and Mizuho have pushed back against the bearish narrative, arguing that AI capital expenditure cycles are still growing and that supply-demand dynamics are unlikely to shift materially before 2028.
Sector Rotation Intensifies as AI Trade Unwinds
All 11 GICS sectors saw divergence last week, with technology the worst performer and the most heavily sold by hedge funds, Goldman said. The Nasdaq 100 closed at 28,786 on Friday, up 0.6% on the day but still nursing steep losses from the multiweek rout. The S&P 500 ended at 7,479, while the Dow slipped 0.2% to 52,074.
The CBOE Volatility Index remained elevated as traders priced in continued uncertainty around tech valuations. The 10-year US Treasury yield moved lower as money rotated out of growth stocks, while the US dollar index held steady.
Morgan Stanley analyst Joseph Moore said in a note Monday that the selloff has created an attractive entry point, naming Nvidia Corp. and Broadcom Inc. as top picks in AI compute while calling memory stocks a "compelling entry point" after their pullback. Mizuho's Vijay Rakesh said there remains "a lot of gas left in the tank," citing AI capital expenditures, expanding gigawatt-scale power deployments and a persistent supply gap that should support semiconductor demand beyond 2028.
JPMorgan's Mislav Matejka echoed that view, saying semiconductor stocks "should soon start to find a bid" because additional supply is unlikely to materially alter the industry's supply-demand balance before 2028.
What's at Stake for the AI Buildout
The record unwind raises questions about whether the AI infrastructure trade has peaked or is simply digesting gains after an extraordinary run. The Invesco QQQ Trust is up 25% over the past 12 months, while the iShares US Technology ETF has gained 35%, leaving valuations stretched by historical measures.
Still, the fundamental case for AI spending remains intact. Hyperscalers continue to commit billions to data center expansion, and the shift from training to inference — where chips are deployed to run AI applications rather than build models — could sustain demand for years. Taiwan Semiconductor Manufacturing Co., which counts Nvidia, AMD and Apple among its customers, remains the indispensable manufacturer in the AI supply chain.
The next catalyst for tech stocks comes later this month when major hyperscalers report quarterly earnings, with investors watching for any signs of CapEx moderation or softening demand commentary.
This article is for informational purposes only and does not constitute investment advice.
