Hedge funds have erased all their net purchases of global artificial intelligence stocks accumulated since the beginning of 2025 in just five trading sessions, as concerns over elevated valuations and the sustainability of AI investment trigger a sharp reduction in technology exposure, according to Goldman Sachs prime brokerage data.

The reversal follows approximately $20bn in technology stock sales over two weeks, approaching the $23bn recorded during a major unwinding in July. Selling of existing long positions outpaced new short selling by 3.5 times, suggesting managers have prioritised reducing exposure rather than establishing outright bearish positions against the sector.

The impact on hedge fund portfolios has been significant, with Goldman Sachs' basket of stocks favoured by hedge funds falling 4.2% on 22 October, its steepest single-day decline since 2011. Separate Morgan Stanley data indicated that hedge funds reduced their overall exposure by approximately 7.8%, the largest reduction recorded since the series began in 2016.

AI infrastructure stocks have been particularly hard hit, with Samsung Electronics, SK Hynix, Micron and SanDisk collectively losing more than $700bn in market value in less than two weeks. Semiconductor shares declined 15.6% in October, compared with a fall of less than 1% for the S&P 500, as investors questioned whether substantial AI capital expenditure would translate into sustainable earnings and cash flows.

Despite the selloff, hedge funds retain significant technology exposure, with the sector accounting for 23.5% of Goldman Sachs' global prime brokerage book, placing allocations in the 90th percentile of the past five years.

The positioning shift suggests a broad reduction in risk appetite rather than a complete retreat from AI-related investments, as managers reassess crowded trades and increasingly focus on company fundamentals and the profitability of AI infrastructure spending.