Goldman Sachs Traders: Trade Crowding Falls to One-Year Low as AI Positions Undergo Sharp Deleveraging

As the impact of deleveraging gradually dissipates, the most crowded positions in global AI trades have been rapidly cleared. Goldman Sachs stated that the crowding level of tech stocks has fallen to near a one-year low, indicating that market logic is switching from "positioning games" to "earnings verification." The focus is no longer on when selling pressure will exhaust itself, but on who can deliver better-than-expected results first in the earnings season.

Lee Coppersmith, a top trader at Goldman Sachs, stated that following this round of adjustments, the logic viewing "overweight positions" as the biggest risk for the AI sector is rapidly weakening. Prime Brokerage data shows that last Friday and this Monday, the global information technology sector recorded its largest two-day long position unwinding since January 2021, marking the second-largest concentrated deleveraging event in the past decade; global memory chip stocks experienced the most intense sell-off on record, and capital flows into tech stocks also fell into one of their weakest historical ranges.

Meanwhile, the South Korean market has become the "epicenter" of this correction, with regulators beginning to prepare for further tightening of leverage trading rules. However, Rich Privorotsky, head of One-Delta business at Goldman Sachs, believes that for long-term capital capable of withstanding short-term volatility, the market has begun to present worthwhile layout opportunities, with the semiconductor capital expenditure supply chain remaining the preferred direction.

Position Unwinding Reaches Highest Intensity in Recent Years

This round of risk release ranks among the most severe deleveraging events in recent years.

Data from Goldman Sachs shows that the three mainstream strategies—hedge fund long/short, macro, and equity long/short—all declined by more than 1% on the same day. The last time this occurred was in March 2020, when the pandemic triggered a global market crash.

At the same time, the net exposure and long/short ratios of the global "Magnificent Seven" (Mag 7) have both dropped to near one-year lows, sitting at approximately the 3rd percentile historically; medium-term momentum exposure, which had been at yearly highs, has also retreated rapidly.

Goldman Sachs pointed out that historical experience shows that momentum reversals following the collapse of crowded trades usually involve overshooting. As this round constitutes one of the more severe position cleanouts in history, it implies that large-scale passive unwinding may be largely complete.

Currently, the volatility of momentum factors is about nine times that of the broader market. The only comparable historical scenario was the fourth quarter of 2020, when vaccine breakthroughs and the U.S. election jointly triggered a drastic style shift.

South Korea Becomes Storm Center as Regulators Plan to Tighten Leverage Limits

The South Korean market has become the "hardest-hit area" of this AI deleveraging storm: the KOSPI 200 index plummeted 46% from its peak in just 27 trading days. Although SK Hynix's financial report failed to boost confidence and instead became the trigger for the latest round of selling, the index subsequently found temporary support near the 200-day moving average, with the 14-day Relative Strength Index (RSI) approaching 30.

The market's 剧烈 volatility has attracted regulatory attention. According to market sources, South Korea is discussing further tightening of leverage trading restrictions. Goldman Sachs believes that if relevant policies are ultimately implemented, it will help reduce market volatility and enhance market resilience in the long run.

However, Privorotsky remains cautious on the memory chip sector. He believes that even after a significant pullback, the current situation offers mostly oversold bounce opportunities at the trading level, and the sector's future performance is more likely to depend on individual company fundamentals rather than overall sector trends.

Notably, this adjustment is clearly concentrated in AI-related assets and has not spread into comprehensive market risk. The S&P 500 Equal Weight Index has recently hit new highs against the trend, forming a sharp contrast with the significant adjustment in core AI assets. This indicates that the current sell-off is more like a "clearing out" of highly concentrated trades rather than the spread of systemic risk.

Coppersmith pointed out that especially in the South Korean market, the trading structure may have undergone fundamental changes, and leveraged capital will not flow back quickly in the short term. However, compared to a week ago, the most positive change in the market is that pressure at the positioning level has significantly eased, and market sentiment is gradually recovering.

Next Stage: Fundamentals Take the Baton

As positioning factors gradually fade, the market is refocusing on fundamentals.

Privorotsky believes that after such a drastic adjustment, investors with long-term capital attributes, whether in momentum trading, memory chips, or hardware sectors, can begin to reevaluate allocation opportunities. His most favored direction remains the semiconductor capital expenditure supply chain, which possesses long-term competitive barriers.

Next, the market will face its first major test—the Federal Reserve FOMC meeting. Despite recent market volatility, the implied volatility of S&P 500 options for the meeting day corresponds to only about a 70 basis point fluctuation, indicating that investors generally do not expect this meeting to become a new source of risk.

What will truly determine whether AI trades can restart is more likely the latest guidance on capital expenditures, profitability, and AI investment returns from tech giants during the subsequent earnings season. After the position clearing, the next round of pricing power in the market is gradually returning to fundamentals.

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