Episode summary
Are Hedge Funds Still Bullish on AI Stocks?
The Markets
· · 12 min · Hosts: Chris Hussey · Guests: Vincent Lin
Summary
Hedge funds have been cutting exposure to AI and tech after a sharp momentum unwind, but Vincent Lin argues the move looks more like a crowded-trade reset than a break in conviction. He says the high-beta momentum basket fell 32% from its highs, the TMT momentum long-short pair was down almost 40%, and tech-focused hedge funds showed the largest supply on record over the past ten years. The selling moved from hyperscalers to semis and then to hardware and infrastructure names.
Lin says the fundamental AI story remains intact, but positioning had become extreme. Global semiconductor allocation in hedge fund books rose from 10% at the start of the year to as high as 24% in June, before easing to 18%. He also points to retail participation, levered ETFs, and a surge in momentum volatility to the highest level in 45 years, outside recessions, as reasons managers de-risked.
Even after the unwind, Lin says hedge fund positioning is only back to the middle of the pack, with gross and net exposure around the 60th to 65th percentile versus the last three years. He says hedge fund performance has been solid, with average returns up 9% through June, and sees opportunities in buying the dip in US AI infrastructure equipment names, preferably with limited-loss options structures.
Key takeaways
- Vincent Lin says the AI trade is undergoing a “healthy reset,” not a collapse in fundamental conviction, after the sharpest tech-selling episode in his data set.
- The high-beta momentum basket was down 32% from its highs, and the TMT momentum long-short pair was down almost 40%, making tech the center of the unwind.
- Global semiconductor allocation in hedge fund portfolios rose from 10% at the start of the year to as high as 24% in June before easing to 18%.
- Lin says realized momentum volatility hit the highest level in 45 years, outside recessions, which pushed managers to reduce risk.
- He thinks the cleaner expression is to buy the dip in US AI infrastructure equipment names using limited-loss option structures rather than outright longs.
Notable quotes
“In our opinion, this is a healthy reset, not a complete loss in fundamental conviction”
“The magnitude of the recent supply is the largest on our record, going back to the last ten years”
“AI is among the biggest tech cycles we ever see in our lifetime”
“the realized momentum factor volatility in the last three months, it has shot up to the highest level in the last 45 years”
“what our team is focused on is to analyze those data on an aggregate analysis manner, and also distill insights on what's happening”
How the episode opens
This is The Markets. I'm Chris Hussey, and today is Wednesday, July 22nd, and we're here on the Goldman Sachs trading floor with Vinny Lin, who is co-head of Prime Insights and Analytics within Global Banking and Markets. Vinny, thanks so much for joining us.
Thanks for having me. You know, we go back a couple decades, you and I. Haven't had you on the show before, so it's great to have you here.
But, you know, Prime Insights and Analytics, that can mean anything. Tell us a little bit about what you do and what part of our firm you're in. I would say the primary customer base for Prime Services are hedge funds, and also capital allocators in the alternative asset management industry.
So, they rely on their prime brokers for a whole suite of services, including consulting, capital introduction, financing, securities lending, reporting, and then lastly trade settlement and- and clearing. And so as their trades settle and become custody on the Goldman PB accounts, we have a unique visibility into those trades and positioning changes, almost on a real-time basis. And so what our team is focused on is to analyze those data on an aggregate analysis manner, and also distill insights on what's happening, you know, essentially the biggest themes that are happening in the hedge fund industry.
Okay, Vinny. Let's get into some of the trading activities that we're seeing right now, and the momentum trade is front and center. Now, momentum is always talking about stocks that are going up, and they keep going up, or stocks that are going down; they keep going down.
And we've seen a lot of violence in that momentum trade, even as the S&P 500 has managed to stay pretty flat. What are we looking at? What is going on?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai stocks
- hedge funds
- tech stock momentum
- crowded trades
- market volatility
Watch the episode
Watch “Are Hedge Funds Still Bullish on AI Stocks?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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