Wall Street investors are showing limited appetite for abandoning the artificial intelligence investment theme despite a sharp technology sell-off that has triggered one of the largest momentum unwinds in approximately four decades.

According to the FT, JPMorgan strategists led by Dubravko Lakos-Bujas have identified increasing signs of investor capitulation following the sharp reversal in long-momentum strategies. Deleveraging indicators have returned to levels last seen during the market disruption surrounding the Trump administration's Liberation Day tariff announcements, while investor sentiment has shifted from bullish in June to bearish.

The scale of the adjustment has raised the possibility that some of the forced selling may already have taken place. Technology shares have been particularly affected as investors reassess valuations and question whether the substantial capital expenditure committed to AI infrastructure can deliver sufficient returns.

Goldman Sachs trading data indicated that hedge funds finished the week as net buyers, although much of the activity reflected the covering of macro positions in indices and exchange-traded funds rather than a decisive return to individual technology stocks.

The wider market has also experienced a deterioration in momentum, with the S&P 500 recording its heaviest weekly loss since April 2025. Nevertheless, the outlook for corporate earnings remains an important argument against turning outright bearish.

JPMorgan's Lakos-Bujas views the recent decline as an intra-cycle adjustment rather than evidence that the AI investment cycle has reached its conclusion. The bank's positioning analysis suggests that the reduction in crowded trades may leave markets in a healthier position, provided earnings expectations remain intact.

For hedge fund managers, the correction presents both risks and opportunities. Managers that reduced technology exposure ahead of the sell-off may have greater flexibility to rebuild positions, while those maintaining concentrated exposure must contend with continued volatility and uncertainty over valuations.