Key Takeaways
- • Global hedge funds cut tech stock positions over the five trading days through Oct. 15 by the largest margin since Goldman Sachs' prime brokerage data began in 2016, according to data released to Bloomberg.
- • Semiconductors posted the heaviest selling by dollar value, and hedge fund net leverage fell to 48.6%, a one-year low.
- • The Nasdaq 100 fell 5.5% last week, its worst weekly performance since April 2025, after CoreWeave shares plunged 25% on debt concerns.
- • Goldman Sachs upgraded CoreWeave to "buy" from "neutral" but cut its price target to $106 from $139; shares traded at $59.75 on Oct. 19.
- • Tech's net allocation in Goldman's prime brokerage portfolios remained at 23.5%, in the 90th percentile of the past five years, leaving exposure historically elevated.
Summary
Global hedge funds reduced their technology stock exposure at the fastest pace in at least a decade over the five trading days through Oct. 15, questioning the sustainability of the AI investment boom. According to data Goldman Sachs' prime brokerage division released to Bloomberg, the reduction was the largest since the firm began tracking the metric in 2016. Overall hedge fund trading activity contracted at its sharpest rate in about three months, with global equity net selling reaching two standard deviations relative to the past year's flow distribution.
The selling concentrated in the information technology sector, which saw its largest de-grossing, the simultaneous reduction of long and short positions, in about two months. Semiconductor shares posted the biggest losses in dollar terms. The Nasdaq 100 fell 5.5% last week, its worst weekly performance since April 2025, and tech was the weakest-performing MSCI World sector over the period. Net leverage, calculated as long minus short exposure, fell to 48.6%, its lowest level in a year. Hedge funds have not fully exited the sector: tech's net allocation in Goldman's global prime brokerage client portfolios stood at 23.5%, still in the 90th percentile of the past five years.
The selloff's epicenter was AI cloud infrastructure provider CoreWeave, whose shares fell 25% last week, their biggest weekly drop since November of last year. Its corporate bond yields spiked to 15% as bonds fell in the secondary market, and the cost of credit default swaps protecting against default hit an intraday record high. Concerns about the company's financial health, which stem from its reliance on debt to build large-scale AI data centers, spread across AI-linked stocks broadly.
Goldman Sachs upgraded CoreWeave to "buy" from "neutral" and cut its price target to $106 from $139. Analyst Gabriela Borges wrote that the share price decline over-reflected the concerns: CoreWeave's average borrowing cost could rise by 1 to 2 percentage points, but a larger increase appears limited, and with AI computing infrastructure supply tight, its internal rate of return over the next 24 months could exceed expectations. Even the new target sits more than 40% above the Oct. 16 close. CoreWeave traded at $59.75 at 1:50 p.m. on Oct. 19, down 2.68% from the prior session. Deutsche Bank also viewed the decline as a buying opportunity, and more than 70% of analysts tracked by Bloomberg recommend buying the stock, with sell ratings at 8.7%.
The data point to a shift in how markets view the financing structure of the AI investment cycle. Aggressive data center and computing infrastructure spending has driven AI-linked stocks higher, with debt-fueled growth companies among the largest beneficiaries. As investors weigh whether such leveraged companies' profitability could come under pressure in a rising-rate environment, hedge funds have reduced directional bets. Whether the selloff marks a full retreat from AI investing or a partial deflation of excess remains open, with AI infrastructure funding costs and bond market conditions identified as the key near-term variables.
The selling concentrated in the information technology sector, which saw its largest de-grossing, the simultaneous reduction of long and short positions, in about two months. Semiconductor shares posted the biggest losses in dollar terms. The Nasdaq 100 fell 5.5% last week, its worst weekly performance since April 2025, and tech was the weakest-performing MSCI World sector over the period. Net leverage, calculated as long minus short exposure, fell to 48.6%, its lowest level in a year. Hedge funds have not fully exited the sector: tech's net allocation in Goldman's global prime brokerage client portfolios stood at 23.5%, still in the 90th percentile of the past five years.
The selloff's epicenter was AI cloud infrastructure provider CoreWeave, whose shares fell 25% last week, their biggest weekly drop since November of last year. Its corporate bond yields spiked to 15% as bonds fell in the secondary market, and the cost of credit default swaps protecting against default hit an intraday record high. Concerns about the company's financial health, which stem from its reliance on debt to build large-scale AI data centers, spread across AI-linked stocks broadly.
Goldman Sachs upgraded CoreWeave to "buy" from "neutral" and cut its price target to $106 from $139. Analyst Gabriela Borges wrote that the share price decline over-reflected the concerns: CoreWeave's average borrowing cost could rise by 1 to 2 percentage points, but a larger increase appears limited, and with AI computing infrastructure supply tight, its internal rate of return over the next 24 months could exceed expectations. Even the new target sits more than 40% above the Oct. 16 close. CoreWeave traded at $59.75 at 1:50 p.m. on Oct. 19, down 2.68% from the prior session. Deutsche Bank also viewed the decline as a buying opportunity, and more than 70% of analysts tracked by Bloomberg recommend buying the stock, with sell ratings at 8.7%.
The data point to a shift in how markets view the financing structure of the AI investment cycle. Aggressive data center and computing infrastructure spending has driven AI-linked stocks higher, with debt-fueled growth companies among the largest beneficiaries. As investors weigh whether such leveraged companies' profitability could come under pressure in a rising-rate environment, hedge funds have reduced directional bets. Whether the selloff marks a full retreat from AI investing or a partial deflation of excess remains open, with AI infrastructure funding costs and bond market conditions identified as the key near-term variables.
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