Goldman Says Hedge Funds Are Selling Tech Stocks Aggressively

In a remarkable month where Nvidia Corp. briefly ascended to the position of the world’s largest company, hedge funds have been “aggressively” selling off tech stocks, according to a report from Goldman Sachs Group Inc.

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The net selling of US tech stocks this month is poised to break records, with data from Goldman’s prime brokerage indicating this could be the largest tech sell-off since records began in 2017. The primary targets of these sell-offs have been semiconductor and semiconductor equipment stocks, followed closely by software and internet stocks.

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Nvidia’s shares have experienced significant volatility, with a staggering $430 billion loss in market value occurring late last week. June has proved to be a turbulent month for major tech stocks, following Nvidia’s rapid rise. Companies like Microsoft Corp., Amazon.com Inc., Meta Platforms Inc., and Apple Inc. have collectively driven over half of this year’s 15% increase in the S&P 500.

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This strategic reduction in tech stock exposure by hedge funds starkly contrasts with the record inflows into tech-related funds observed last week, which propelled the tech-heavy Nasdaq 100 index to its latest record high on June 18. Last week, the tech sector’s weight in the S&P 500 reached 33%, the highest level in nearly 24 years.

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Moreover, the momentum-style investing that fueled Nvidia’s and other tech giants' all-time highs is now showing signs of weakening. Goldman’s data indicates that hedge funds’ momentum exposure is set to decline for the first time in six months. There have been significant drops in “long concentration” and “long crowdedness,” hitting their lowest levels this year. This suggests that long-short fund managers are becoming increasingly cautious about potential downturns in these high-performing stocks.

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This sell-off isn’t confined to the tech sector alone. Hedge funds are adopting a more defensive stance across their portfolios. There has been a noticeable reduction in gross leverage, a measure of risk appetite, with the most significant net selling occurring in North America and Europe so far this month.

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Goldman Sachs noted that hedge funds, which had been adding risk to their portfolios nearly every week this year, are now showing signs of unwinding risk. Recent trading flows indicate a shift driven by long sales and, to a lesser extent, short covering. This trend suggests that fund managers are reassessing their positions and becoming more risk-averse amid the current market volatility.

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