Faith in AI Remains After July's "Bloodbath"! Goldman Sachs: Hedge Funds Heavily Bet on Big Tech, Amazon Most Favoured for 11 Consecutive Quarters

The severe volatility in US stocks in July did not shake hedge funds' confidence in AI trades. The latest report from Goldman Sachs shows that despite experiencing large-scale deleveraging and position clearing, hedge funds continue to heavily bet on large-cap tech stocks, with AI remaining the core investment theme.

Goldman Sachs' monitoring of nearly 1,000 hedge funds, with a combined $5.4 trillion in long-short equity exposures, shows that as of August 19, hedge funds' overall year-to-date return still reached 10%. However, the sharp correction in July also caused the industry to suffer one of its worst single-month performances relative to the S&P 500 in nearly 20 years, exposing the fragility of crowded trades.

But capital did not withdraw significantly as a result. Goldman Sachs data shows that Amazon became the most popular individual stock among hedge funds for the 11th consecutive quarter; among its top ten most favored stocks, nine were related to the AI theme.

At the same time, hedge funds began to diversify risk by reducing overall leverage and expanding sector allocations. Net allocations to the three major sectors of healthcare, financials, and energy all rose to near-decade highs, indicating that capital is adding defensive buffer outside the AI main theme.

Significant Deleveraging in July, Popular AI Positions Suffered Deepest Declines

Ben Snider, head of portfolio strategy research at Goldman Sachs, stated that July was "one of the most intense periods of hedge fund deleveraging in the past decade."

This adjustment was not simply a reduction in net exposure, but a contraction of the entire trading book, with funds not only reducing directional bets but also compressing the overall scale of positions.

The weakening of the semiconductor sector and the concentrated release of earnings reports by hyperscale cloud computing companies were important factors triggering position clearing. The market briefly began to question whether the high growth in AI capital expenditure could be sustained, putting pressure on AI trades that had seen significant gains earlier.

Goldman Sachs pointed out that the best-performing AI-related positions in the second quarter were precisely the directions where funds added the most positions during that quarter, subsequently suffering the deepest declines in the July correction. This means that the more concentrated the capital in popular trades, the more prone they are to stampedes when market volatility amplifies.

Amazon Tops the List for 11 Consecutive Quarters, Nine of Top Ten Popular Stocks Related to AI

Despite the severe market volatility in July, the overall investment direction of hedge funds did not undergo a fundamental shift, and the preference for large-cap tech stocks remained solid.

According to the latest data from Goldman Sachs, Amazon remained the most popular individual stock for the 11th consecutive quarter, and among the top ten popular holdings, nine were closely related to the artificial intelligence theme, with Visa being the only exception. This indicates that AI remains the current core investment theme.

At the same time, capital is further extending its allocation along the AI industrial chain. Data from the second quarter shows that the popularity of data centers, AI infrastructure, and related power equipment companies has increased significantly, reflecting that institutions are continuously exploring structural opportunities in areas such as computing power and applications.

In addition, some growth stocks that had previously not entered the top 50 popular holdings have also begun to gain attention, covering sectors such as software, e-commerce, media, and aviation, indicating that capital has not abandoned the growth style, but is moderately broadening the allocation scope outside the AI main theme.

From an overall position perspective, although hedge funds' net leverage ratio has declined, their total market exposure remains higher than the historical average. Goldman Sachs pointed out that the proportion of ETF long positions has risen to 5.6%, the highest level since the global financial crisis in 2008. At the same time, the net tilt indicators for the three major sectors of healthcare, financials, and energy have all risen to near-decade highs, showing that capital is systematically diversifying risk into non-tech fields.

Overall, the market turmoil in July prompted hedge funds to optimize their portfolio structure rather than reverse their investment direction. AI remains the overwhelming main theme, but facing highly crowded tech stock trades, institutions are balancing portfolio risk by increasing allocations to other sectors, with the overall strategy showing more obvious diversification and defensive characteristics while adhering to the core theme.