Stockpicking hedge funds are 'all in' on AI bets — and increasingly skeptical of everything else

Recent insights from Goldman Sachs reveal that stockpicking hedge funds are heavily investing in artificial intelligence, showing little concern for a potential AI bubble. An analysis of over 1,000 fund managers managing more than $4 trillion highlights a significant shift towards information technology stocks in the last quarter. Notably, the average hedge fund manager has allocated 10% of their portfolio specifically to semiconductor firms. The strategy appears to be paying off, as Goldman's AI-focused stock basket has outperformed the S&P 500, achieving a 13% gain compared to the index's 9% rise through May 21. Key players in this trend include giants such as Amazon, Nvidia, Alphabet, Microsoft, and Meta, along with AI-oriented companies like SanDisk, Lam Research, and Applied Materials, which have gained traction among hedge funds. Ben Snider, Goldman's chief US equity strategist and co-author of the report, emphasized that these funds are demonstrating strong stock-picking abilities. Meanwhile, many funds are steering clear of companies deemed vulnerable to AI advancements or those unrelated to the technology. The report indicates that the software sector now constitutes just 6% of hedge fund portfolios, the lowest level since 2019. In a striking contrast, funds are ramping up short positions against companies in traditional 'defensive' sectors like healthcare and utilities, which typically offer steady revenue regardless of economic conditions. Snider pointed out that the current sentiment shows a distinct skepticism towards non-AI stocks, juxtaposed against a robust confidence in AI investments. Interestingly, the only non-tech sector that has seen increased exposure in hedge fund portfolios is financials, with Wells Fargo emerging as a favored choice. According to Snider, hedge funds believe that the most valuable companies still have considerable growth potential, indicating a focused investment approach towards leading tech firms.