Hedge funds sold technology stocks at their fastest pace in two years last Thursday, raising questions over investor conviction following months of concentrated positioning and declining performance, according to a report by Bloomberg citing Goldman Sachs.

Pasquariello, Goldman’s head of hedge fund coverage, said leveraged investors have been reducing both net and gross equity exposure for several weeks, with Thursday’s 2.9% decline in the Nasdaq 100 marking a particularly sharp unwind. Despite the S&P 500 trading within a narrow range for three months, hedge fund performance has deteriorated since late June as heavily owned AI positions have come under pressure.

The sell-off reflects a combination of crowded positioning and concerns over the sustainability of AI-related capital expenditure. While demand for AI infrastructure remains strong, investors are increasingly questioning whether sufficient power and capital will be available to support planned investment. Rising oil prices and uncertainty ahead of the US midterm elections have added to pressure on risk appetite.

Pasquariello highlighted several indicators of continued market stress, including a month of deleveraging among hedge funds, rising implied volatility and underperformance among cyclical stocks. Goldman’s risk appetite indicator has also turned negative for the first time since March, while the S&P 500 excluding AI-related stocks is heading for its strongest relative month in three years.

Despite expecting the broader equity bull market to continue, Pasquariello cautioned against aggressively rebuilding risk exposure. Goldman forecasts S&P 500 earnings growth will slow from 29% in 2026 to 18% in 2027, leaving equities more vulnerable to macroeconomic pressures as investors reassess crowded technology positions.