After the "bloodbath" in July, faith in AI remains! Goldman Sachs: Hedge funds heavily bet on big tech, Amazon remains the most favored for 11 consecutive quarters

The intense volatility in the US stock market in July did not shake hedge funds' confidence in AI trading. Goldman Sachs’ latest report shows that despite large-scale deleveraging and position trimming, hedge funds continue to heavily invest in large-cap technology 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 exposure shows that as of August 19, hedge funds' overall return this year has reached 10%. However, the sharp correction in July meant the industry suffered one of the worst relative months against the S&P 500 in nearly two decades, revealing the vulnerability of crowded trades.

Nevertheless, capital did not flow out on a large scale. Goldman Sachs data show that Amazon became the most favored individual stock among hedge funds for the 11th consecutive quarter; among the top ten most popular stocks, nine are AI-related.

At the same time, hedge funds have started to reduce overall leverage and broaden sector allocation to diversify risk. Net allocations to healthcare, financials, and energy sectors have all risen to near ten-year highs, indicating that capital is creating defensive buffers outside of the AI theme.

Significant Deleveraging in July, Most Popular AI Positions Suffer Biggest Drops

Ben Snider, head of Portfolio Strategy Research at Goldman Sachs, stated that July was “one of the most significant periods of deleveraging for hedge funds in the last decade.”

This adjustment was not a simple reduction in net exposure, but rather a scaling back of the entire trading book, with funds not only reducing directional bets but also compressing overall position sizes.

Weak performance in the semiconductor sector and the concentrated earnings releases of large cloud computing companies were key triggers for position unwinding. The market began to question whether the high growth in AI capital expenditure could continue, causing pressure on previously high-flying AI trades.

Goldman Sachs points out that the best performing AI-related positions in the second quarter—those that funds increased the most during the period—also suffered the largest drawdowns in July’s correction. This means that the more crowded a popular trade becomes, the more prone it is to rapid sell-offs when market volatility increases.

Amazon Tops the List for 11 Straight Quarters, Nine Out of Top Ten Stocks Are AI-Related

Despite dramatic market swings in July, hedge funds' overall investment approach has not fundamentally shifted, and their preference for large technology stocks remains firm.

According to the latest Goldman Sachs data, Amazon has remained the favorite individual stock for 11 consecutive quarters, and among the top ten most popular positions, nine are closely related to the artificial intelligence theme, with Visa being the sole exception. This shows that AI remains the dominant investment theme for now.

Meanwhile, capital is further extending along the AI industry chain. Second-quarter data show a significant rise in the popularity of data center, AI infrastructure, and related power equipment companies, reflecting institutions’ ongoing search for structural opportunities beyond computation power and applications.

Additionally, some growth stocks—previously not in the top 50 most popular holdings—have also started to gain attention, spanning software, e-commerce, media, and aviation sectors. This suggests that investors have not abandoned growth strategies, but are moderately broadening their allocations outside the AI theme.

In terms of overall positioning, while the net leverage ratio of hedge funds has declined, their total market exposure remains above the historical average. According to Goldman Sachs, ETF long positions have reached 5.6%, the highest since the 2008 global financial crisis. At the same time, net tilt indicators for healthcare, financials, and energy sectors are at near ten-year highs, suggesting that capital is systematically diversifying risk into non-tech sectors.

Overall, the market turbulence in July has prompted hedge funds to optimize portfolio structures rather than reverse investment direction. AI remains the overwhelming main theme, but faced with crowded technology stock trades, institutions are balancing portfolio risks by increasing allocations to other sectors. The overall strategy maintains a core focus while becoming noticeably more diversified and defensive.