Hedge funds begin massive selloff of technology stocks
Hedge funds around the world sharply accelerated their selling of technology stocks last week. The pace of the selloff was among the fastest in the past decade, amid investor concerns about the outlook for data center construction in the U.S. and the future of the artificial intelligence industry.
According to Bloomberg, citing Goldman Sachs data, technology was the most heavily net-sold sector both in the U.S. and globally last week. The scale of selling approached record levels for the bank's entire observation period, which dates back to 2016.
The main trigger was the outcome of the U.S. midterm elections, which heightened concerns about political opposition to the construction of new data centers. Investors began questioning whether technology corporations would be able to complete all their planned projects, which are expected to drive demand for chips and other artificial intelligence infrastructure.
Against this backdrop, hedge funds actively reduced their positions not only in technology stocks but also in industrial companies. Selling of U.S. industrial stocks reached its fastest pace since April 2020. Meanwhile, net selling of individual stocks reached its highest level in four months.
Investors reduce risk exposure
Investors' efforts to reduce risk were also reflected in their use of leverage. According to Goldman Sachs, gross leverage among U.S. funds holding both long and short positions fell by 8.7 percentage points over the week to 207.5%. This was the sharpest decline since March 2020.
Net leverage, which measures the difference between long and short exposure, decreased by 3.7 percentage points to 43.3%. The last comparable weekly decline occurred in April 2025, following the Trump administration's announcement of sweeping trade tariffs.
However, the first signs of stabilization emerged toward the end of the week. According to Goldman Sachs' equity trading desk, hedge funds actively bought stocks on Friday, primarily as they covered positions involving stock indexes and exchange-traded funds (ETFs). As a result, the desk's data showed hedge funds as net buyers for the week, despite the heavy selling of technology shares.
Should investors follow hedge funds?
The massive selling of technology stocks by hedge funds may appear to be a signal to exit the sector. However, the actions of major market players do not always reflect their long-term expectations. In this case, funds were reducing leverage and closing positions following a sharp market decline. This suggests that some of the selling may have been driven not by worsening prospects for AI companies, but by the need to reduce risk quickly. Moreover, hedge funds returned to buying as early as Friday, even though the fundamental questions surrounding data center construction remained unresolved.
For retail investors, understanding why funds change their strategies is more important than attempting to replicate their trades. For example, political opposition to data center construction could indeed affect the future revenues of chipmakers and equipment suppliers. However, the impact will vary across companies, as some depend more heavily on new infrastructure projects than others. Therefore, hedge fund selling should be viewed as a warning of increased uncertainty rather than evidence that investments in artificial intelligence have lost their potential.
As a reminder, hedge funds have warned of growing risks in the private credit market.
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