Is AI Losing Favor? Goldman Sachs Reveals Hedge Funds Are Accelerating Withdrawal from Tech Stocks

Artificial intelligence (AI)-related stocks have recently experienced sharp volatility. Goldman Sachs (GS-US)’s latest report shows hedge funds have been reducing their exposure to U.S. technology stocks at the fastest pace on record over the past two months, reflecting a clear decline in market confidence in AI infrastructure-related equities. Capital is also beginning to shift toward other industries.

Goldman Sachs’ Prime Services division reports that hedge funds have net sold technology stocks in six of the past eight weeks, reducing their total market value of holdings by approximately 10%. This marks the largest decline in over a decade of data tracking by the firm. The report notes that since early June, semiconductor, memory, and AI infrastructure stocks have undergone significant corrections, with technology investors clearly reducing their positions. The market is even beginning to show signs of 'capitulation' selling.

Since early June, the S&P 500 Information Technology Index has declined by about 10%. As the high valuations driven by AI themes come under pressure, many investors are taking profits and expressing concerns that large tech companies may slow down AI-related capital expenditures. This has prompted capital to gradually shift toward other sectors such as consumer stocks.

Goldman Sachs points out that tech stocks were the weakest-performing group in U.S. equities last week and the most heavily net sold by hedge funds. Overall, most tech sub-industries have seen reduced positions, with the heaviest selling pressure on technology hardware, storage and peripheral products, and IT services. While semiconductor and software stocks have also been sold off, the extent has been relatively smaller.

Ben Snider’s strategist team at Goldman Sachs states that the recent 'painful volatility' in AI infrastructure-related stocks has re-ignited investor interest in other industries, signaling a shift in capital allocation. They believe that while the fundamental outlook for the AI industry remains solid, based on historical patterns, current positioning, and a lack of new positive catalysts, momentum trading in AI infrastructure is likely to face continued challenges in the short term.

Analysts note that this week, tech giants including Alphabet (GOOGL-US) will report earnings, and the market will closely monitor AI investment, capital spending, and future guidance. These details are expected to become key factors influencing the trajectory of AI-related stocks and capital flows.