The Magnificent Seven rebounded sharply on Monday as hedge funds unwound a popular relative-value trade that had favoured semiconductor stocks over mega-cap technology names, according to a report by Market Watch.

Six of the seven largest US technology companies advanced during the session, outperforming the broader market as investors rotated back into large-cap growth stocks. The move coincided with weakness across semiconductor shares, suggesting a reversal of one of the market's most crowded hedge fund positions.

According to market participants, many hedge funds had recently funded long positions in AI-related chipmakers by reducing exposure to the Magnificent Seven. As that positioning unwound, capital flowed back into mega-cap technology stocks, while the semiconductor sector lagged.

The rotation follows a difficult month for the Magnificent Seven, which have come under pressure amid growing investor scrutiny over AI spending and the returns generated from significant infrastructure investment. At the same time, semiconductor stocks have substantially outperformed on expectations they will remain the primary beneficiaries of AI-related capital expenditure.

The latest rebound highlights how positioning, rather than fundamentals alone, continues to drive short-term market moves, with hedge fund reallocations increasingly influencing performance across technology sectors.