Are the “AI ROI” fears already fully priced in? The smart money seems to think we are at least due for a bounce.
After weeks of historic, brutal selloffs in the technology sector, hedge funds are quietly stepping back into the market. According to new prime brokerage data from JPMorgan and Goldman Sachs, institutional players are scooping up mega-cap tech and heavily beaten-down software stocks, while simultaneously pushing portfolio leverage to its highest level in nearly a year.
🔄 THE ROTATION PAUSES (JPM DATA):
- The Software Bid: After dumping software stocks at historic rates over AI disruption fears, hedge funds reversed course last week, actively buying back into the companies deemed most “vulnerable” to AI advances.
- Semis vs. Software: While positioning remains extremely stretched between Semiconductors (Overweight) and Software (Underweight), the violent rotation out of the latter appears to have finally stalled.
⚖️ THE MACRO CONTRADICTION (GS DATA): The tech-buying is happening against a backdrop of broader market de-risking.
- Surging Leverage: Hedge fund leverage increased significantly last week, nearing a 1-year high.
- Record Global Selling: Despite the tech bids, overall net sales orders in global equities hit their highest level since the April 2025 tariff shock.
- The Defensive Shift: Where is the rest of the capital going? Goldman notes that funds aggressively sold Financials, rotating capital into classic defensive sectors: Energy, Health Care, and Consumer Staples.
💡 ANALYST TAKEAWAY: This is a classic “Barbell Strategy” executed with high leverage. Hedge funds are terrified of missing a potential technical rebound in mega-cap tech and software, so they are buying the dip. However, their lack of conviction in the broader macroeconomic picture is glaringly obvious: they are funding these tech bets by dumping financials and hiding out in defensive, recession-resistant sectors. They are playing offense and defense at the exact same time—and cranking up the leverage to do it.
👇 Equity Strategists: Is this software bid a dead-cat bounce driven by short-covering, or the start of a genuine mean-reversion trade for 2026?