Hedge funds dump US tech stocks at record 10% pace, Goldman says

Hedge funds cut US technology stock holdings by a record 10% over two months, Goldman Sachs prime brokerage data shows, as the S&P 500 IT Index dropped about 10% since early June.

"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," Vincent Lin, who leads Goldman's prime services desk, said.

The cohort was a net seller of the sector in six of the past eight weeks, with the cumulative reduction in market value marking the largest such retreat since the data series began more than a decade ago. Most subsectors were net sold, led by technology hardware, storage and peripherals and IT services. The VanEck Semiconductor ETF fell nearly 9% last week, its worst single-week decline since March 2025. The tech-heavy Nasdaq Composite was up 0.5% in afternoon trading Monday.

The selloff has renewed interest in other sectors, Goldman strategists led by Ben Snider said, as investors question whether AI-fueled valuations are sustainable. Markets now price a 62% probability of a Federal Reserve rate hike by September, with Brent crude crossing $90 a barrel adding to inflation concerns.

The rotation out of technology has been broad-based. Consumer stocks have been among the beneficiaries, with Domino's Pizza rising after reporting second-quarter revenue of $1.19 billion that slightly beat estimates, even as earnings of $4.07 per share missed forecasts and US same-store sales growth slowed.

Wall Street Sees Opportunity in the Selloff

Several Wall Street firms argued the selloff has done little to undermine the long-term outlook for AI infrastructure spending. Mizuho's Vijay Rakesh said there is still "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.

Morgan Stanley identified the pullback as an entry point, naming Nvidia Corp. and Broadcom Inc. as top picks in AI compute while calling memory stocks a "compelling entry point" after their recent decline, analyst Joseph Moore said in a note.

The rotation out of technology coincided with a rise in US Treasury yields, with the two-year and 10-year notes both edging higher as Brent crude's advance above $90 a barrel stoked inflation concerns. The dollar strengthened on safe-haven demand as US-Iran tensions escalated, while gold prices were largely flat as higher yields offset bullion's traditional appeal.

The selling pressure may persist in the near term. Goldman's strategists said "history, positioning, and lack of a favorable catalyst point to continued near-term challenges for the AI infrastructure Momentum trade despite solid fundamentals." The next major test for tech stocks comes as Alphabet and other mega-cap firms prepare to report earnings in the coming weeks.

This article is for informational purposes only and does not constitute investment advice.