Investors trim positions in AI-linked equities as confidence wanes despite long-term optimism about the sector’s growth.
Hedge funds have started cutting exposure to artificial intelligence stocks, citing concerns over overcrowding in the trade, according to client meetings across the U.S. and Europe. While long-term belief in AI remains intact, tactical conviction is fading as funds fear a slowdown in spending upgrades and rising risks from concentrated positions.
Positioning among U.S. investors remains heavily skewed toward AI-related sectors, including semiconductors, technology, and capital goods. However, confidence has shifted as funds acknowledge the dangers of being on the “same bus”—a scenario where too many investors hold identical trades, increasing vulnerability to sharp reversals.
Some hedge funds are rotating into U.S. cyclical stocks, particularly industrials and financials, as economic growth accelerates. Healthcare, including obesity drugmakers, has also seen upgrades, though it lacks the cyclical appeal some investors seek. Appetite for European equities among American investors remains limited.