Hedge funds reverse all 2025 AI stock purchases in five-day sell-off

Goldman Sachs data shows that hedge funds sold AI stocks for five consecutive days in October, reversing every net purchase made in the sector since the start of 2025. The rapid unwinding of positions coincided with a sharp decline in technology valuations, with big tech stocks erasing $2 trillion in market value during the same period.

Scope of the sell-off

Morgan Stanley reported that hedge funds cut more than 8% of their total stock bets since June, marking the largest retreat for the asset class since at least 2017. While the S&P 500 remained largely stable through late October, the selling pressure concentrated heavily in specific technology subsectors. Memory chipmakers Samsung, SK Hynix, Micron, and SanDisk lost more than $700 billion in value in under two weeks.

Goldman figures indicate that on the heaviest day of selling, funds disposed of shares they owned approximately 3.5 times faster than they opened new short positions against stocks. This pattern suggests that the primary driver was risk reduction rather than a coordinated bet on a market crash. On October 22, Goldman’s basket of hedge funds’ favorite stocks fell 4.2%, the worst single-day performance for that index since 2011. The bank’s prime desk noted that the conditions on that day were significantly worse than the previous week.

Deleveraging versus demand

Macro investor Jordi Visser attributed the selling pressure to borrowed money rather than weak underlying demand. He estimated that it took 18 months to build the leverage that was subsequently unwound in 75 days. Visser described the event as one of the largest hedge fund equity deleveraging episodes in the last 30 years that occurred without a corresponding economic deleveraging.

Contradictory signals regarding the health of the AI sector emerged from corporate and analyst perspectives. Corporate profits are up about 20%, and AI computing demand continues to outpace supply. SK Hynix forecasts a memory shortage that will persist until 2030. Fundstrat’s Tom Lee suggested that a single forced seller may have triggered the slide, rather than a broad loss of confidence in AI fundamentals.

Goldman Sachs offered a more cautious outlook, stating that the unwind process appears closer to its beginning than its end. The bank noted that funds’ AI holdings still rank in the top 17% of the past three years, indicating substantial exposure remains. A late-October selloff wiped approximately $2 trillion off the Nasdaq-100, further highlighting the volatility in the sector. The next step for market participants involves monitoring whether the remaining leverage continues to unwind or if stabilization occurs as positions reach lower thresholds.