Hedge funds have been taking profits on the powerful rally in semiconductor stocks, particularly in US-listed chipmakers tied to the artificial intelligence (AI) boom, as investors reassess positioning amid rising geopolitical and China-related risks, according to a Goldman Sachs note report Bloomberg.

Goldman’s prime brokerage desk said hedge funds globally sold semiconductor shares at the fastest pace in nearly a year over the past week, with long selling far exceeding short covering. The reduction was concentrated in US semiconductor and semiconductor equipment names, many of which have been among the market’s most crowded AI trades.

While the selling largely reflected profit taking after a steep rally, investors are also becoming increasingly sensitive to the sector’s exposure to China, both as a critical end market and as a flashpoint in the US-China technology dispute.

The semiconductor industry has been one of the biggest beneficiaries of the AI spending boom, driven by aggressive capital expenditure from hyperscale cloud companies and surging demand for advanced processors used in generative AI infrastructure. However, concerns are mounting that tighter US export restrictions on advanced chips to China could eventually weigh on growth expectations for some companies.

Several leading chipmakers continue to derive significant revenue from Chinese customers despite Washington’s efforts to curb Beijing’s access to cutting-edge AI hardware. Investors are now weighing whether elevated valuations across the sector fully reflect the geopolitical risks tied to supply chains, export controls and the possibility of further escalation in US-China tech tensions.

Goldman noted that hedge funds rotated some capital away from chip stocks and into software and internet companies viewed as less directly exposed to trade restrictions while still positioned to benefit from AI adoption.

The repositioning also comes ahead of key inflation data and shifting expectations around US interest rates, which have prompted broader portfolio adjustments across macro and equity long-short strategies.

Despite the recent pullback in positioning, sentiment toward the long-term AI theme remains constructive. However, fund managers appear to be taking a more selective approach after the sector’s rapid gains, particularly in companies with significant China exposure or supply chain dependencies linked to Asia.

Hedgeweek

Message History

Delivery option(s)