AI Fear Trade? Hedge Funds Reportedly Made Their Biggest Bet Against Tech In Years, Says Goldman Sachs

• Goldman Sachs’ prime brokerage team said short sales outpaced purchases by roughly two-to-one from January 30 to February 5.
• Shares of many established software companies fell sharply last week as traders grew increasingly uneasy about the risk that artificial intelligence poses.
• A basket of 164 companies in software, financial services, and asset management collectively lost $611 billion in market value over the week. 

Hedge funds reportedly increased short positions in U.S. equities aggressively last week as fears about artificial intelligence reshaping business models rattled investors. Market volatility surged as funds bet against software and other sectors potentially exposed to AI-driven disruption.

Record Short Selling Activity  

According to a Bloomberg report, data from Goldman Sachs Group (GS) shows that last week’s notional shorting of single stocks reached the highest level since 2016. The bank’s prime brokerage team said short sales outpaced purchases by roughly two-to-one from January 30 to February 5.

Software Stocks Bear The Brunt

Shares of many established software companies fell sharply last week as traders grew increasingly uneasy about the risk that artificial intelligence innovations could erode demand for traditional subscription software.

The slide gained momentum after Anthropic introduced a new AI legal automation product.

$611 Billion Wiped From Key Sectors

According to the report,  a basket of 164 companies in software, financial services, and asset management collectively lost $611 billion in market value over the week. 

Information technology took the brunt of the hedge fund selling, with software stocks accounting for roughly 75% of net outflows. The sector’s aggregate net exposure dropped to just 2.6%, while the long-short ratio hit a record low of 1.3. 

Wall Street Sees Long-Term AI Upside

However, another Bloomberg report cited Morgan Stanley strategists who say U.S. technology stocks have room to climb further as optimism around artificial intelligence strengthens revenue prospects. 

The research team, led by Michael Wilson noted that market pullbacks such as last week’s Nasdaq 100 decline, the largest weekly drop since December, are a normal feature of major investment cycles. While some tech stocks vulnerable to AI-driven disruption fell sharply, Wilson believes the long-term fundamental tailwinds for AI enablers remain strong. 

Also See: Salesforce, ServiceNow Rejoin Dan Ives’ AI Watchlist After Software Sell-Off

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