- Hedge funds are rapidly pulling back from global tech stocks, with the heaviest selling concentrated in the semiconductor sector, according to a note from Goldman Sachs. While tech stocks generally are volatile, several factors have put even more pressure on technology companies this year.
Hedge funds are reducing their exposure to global information technology stocks at an accelerated pace, with the latest selloff marking the fastest decline in six months, according to a note from Goldman Sachs’ Prime Services desk.
The tech sector, which is already struggling with volatile performance, saw the highest net selling activity on Goldman’s prime brokerage platform. U.S. Tech stocks bore the brunt of the selloff, making up about 75% of global net selling.
The heaviest selling was concentrated in the semiconductors and semiconductor equipment sectors, while only electronic equipment and communications equipment stocks avoided net outflows.
U.S. Hedge fund exposure to the information technology sector has fallen to 16.4%, the lowest level in five years, per the note, signaling a shift in investor sentiment.
For years, hedge funds have maintained relatively elevated exposure to technology stocks, betting on continued innovation and strong earnings growth.
However, mounting macroeconomic pressures—including the threat of tariffs affecting global trade, lofty valuations, and uncertainty around the sustainability of earnings—may have prompted a wave of de-risking.
According to a Thursday note from Morgan Stanley, hedge funds have also been ramping up their short positions, with Nvidia, Advanced Micro Devices, and Tesla emerging as their top three shorts.
The selloff latest was largely driven by hedge funds reducing their long positions while increasing short bets, indicating a more bearish stance on the sector’s future. A short position bets on an asset’s price declining, while a long position anticipates it will increase.
Tech stocks have been volatile
Technology stocks have had a tumultuous year.
While tech stocks are generally more volatile as companies tend to have high valuations paired with very high price-earnings ratios, several factors have put even more pressure on technology shares this year.
Investor confidence in major U.S. Tech companies took a hit in January after the release of an advanced reasoning AI China-based DeepSeek. The uncertainty generated by the company’s R1 AI model wiped nearly $1 trillion off U.S. Tech sector market capitalization in a single day and forced a rethink of AI valuations.
The selloff was sparked by claims that DeepSeek built its newest model using lower capability and less expensive chips, something that put pressure on Nvidia shares as investors worried that other Big Tech firms could scale back their demand for the chipmaker’s more advanced offerings.
The threat of an escalating trade war over President Trump’s tariffs has also hit technology stocks. Overnight, stocks plunged after Trump said he would issue tariffs on “all countries” and threatened to impose levies on Russian oil.
Chipmakers such as Taiwan Semiconductor Manufacturing Company, SK Hynix, Samsung, and Tokyo Electron all saw declines on Monday.
Fears of AI Bubble
There has been concern among some investors and analysts that tech stocks might be in an AI-induced bubble. While AI has significant potential, the rapid rise in valuations for companies developing the tech has raised questions about whether they are being overhyped or overvalued.
In a strategy paper published last week, Goldman Sachs tried to reassure investors that strong investment opportunities in the tech sector remain and dispelled fears the stocks were in an AI bubble.
The paper said that although the current selloff in big tech had prompted comparisons with the dot-com bubble burst 25 years ago, the key distinction between 2000 and 2025 is that today’s rising tech stock valuations are largely supported by strong fundamentals, such as surging profits.