A lot of the recent volatility in technology stocks is due to hedge funds selling shares in companies tied to the artificial intelligence (AI) buildout at a record pace, says Goldman Sachs (GS).
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Hedge funds in the U.S. have been net sellers of technology stocks in six of the last eight weeks, according to Goldman Sachs. The cumulative reduction in market value totals about 10%, marking the largest retreat from the sector in more than a decade and on a record pace.
Institutional Investors Turn Defensive
The selling of technology stocks comes as institutional investors such as hedge funds turn defensive to start the year’s third quarter, moving out of technology stocks and cryptocurrencies and into other areas of the market. As a result, the S&P 500 Information Technology Index has dropped 10% since early June as investors take profits and grow more skeptical that AI-fueled valuations are sustainable.
“Amid continued volatility and sharp selloff across the semis/memory/AI infrastructure complex, 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,” write the analysts in a note to clients.
Goldman notes that hedge funds have been rotating into other sectors of the market, such as consumer stocks, as concerns mount about the risk that the biggest technology companies could pullback on the flood of investment spending on AI infrastructure.
“History, positioning, and lack of a favorable catalysts point to continued near-term challenges for the AI infrastructure momentum trade,” conclude the Goldman Sachs’ analysts.
Is GOOGL Stock a Buy?
The stock of Alphabet has a consensus Strong Buy rating among 33 Wall Street analysts. That rating is based on 28 Buy and five Hold recommendations issued in the last three months. The average GOOGL price target of $427.38 implies 24% upside from current levels.
