The Great Unwind: Hedge Funds Flee Tech at Near-Record Pace

Fresh data from Goldman Sachs’ prime brokerage division reveals a dramatic exodus from the technology sector by hedge funds. In the week ending November 6th, tech stocks were the most net-sold sector globally and in the U.S., with the selling intensity nearing the highest levels recorded since 2016.

Beyond Tech: Industrial Stocks Caught in the Crossfire

The selling pressure was not contained. Net selling of individual U.S. stocks hit a four-month high during the same period. Notably, the pace of net selling in U.S. industrial stocks accelerated to its fastest rate since April 2020, signaling a broadening of the downturn.

Leverage Craters in Sharpest Weekly Pullback Since 2020

Mirroring the sell-off was a rapid de-risking by funds. The total leverage of U.S. fundamental long/short hedge funds plunged by 8.7 percentage points to 207.5%, marking the most significant weekly decline since the market turmoil of March 2020. Net leverage also fell by 3.7 percentage points to 43.3%, underscoring a deliberate reduction in market exposure.

The Trigger: A $2.3 Trillion Nasdaq Rout

This coordinated deleveraging followed a severe market shock. Just days before, the tech-heavy Nasdaq 100 index plummeted 6.4% in a single session—its worst day since March 2020—erasing approximately $2.3 trillion in market value.

The subsequent reassessment of risks appears to be the primary driver. Following the U.S. midterm elections, investors began pricing in new uncertainties surrounding the AI infrastructure boom:

  • Data Center Hurdles: Potential for tighter local regulations and permitting delays.
  • Skyrocketing Power Costs: Soaring energy needs for AI operations threaten profitability.
  • Shifting Regulatory Sands: Increased policy unpredictability at state and local levels.

These concerns fueled not only the tech selloff but also spilled over into industrial stocks previously seen as AI infrastructure beneficiaries.

The Other Side of the Coin: Net Buying Masks Tactical Shifts

Interestingly, Goldman's data also showed hedge funds were net buyers overall last week. However, this wasn't a vote of confidence in battered tech shares. The net buying primarily stemmed from short covering in index and ETF macro positions on Friday, not from re-accumulating individual tech stocks. This points more toward tactical portfolio rebalancing than a bullish reversal.

Crossroads Ahead: Temporary Reset or Lasting Shift?

The path forward is contested. Some analysts note the selloff was exacerbated by a wave of forced liquidations from leveraged positions, amplifying the downturn. Others highlight that capital expenditure plans from major cloud providers remain robust, suggesting the long-term AI investment thesis is intact. The current hedge fund activity likely represents a concentrated risk-off move amid heightened macro uncertainty and valuation pressures. Whether stability returns will hinge on corporate earnings, the interest rate trajectory, and clarity on the looming regulatory and cost challenges.