Tech stocks have been sold off by hedge funds for four consecutive weeks, Goldman Sachs trader: The era of 'buy everything AI' is over!

Hedge funds are systematically exiting tech stocks. According to the latest Goldman Sachs data, the tech sector has seen net selling for four consecutive weeks, and Goldman traders have explicitly warned: the market has moved beyond the "buy everything AI" logic, and an era of divergence is approaching.

According to the latest Goldman weekly briefing, for the week ending July 2, hedge funds have been net selling U.S. stocks for the third consecutive week, with the main pressure coming from long individual stock reductions, partially offset by long macro product buying. Meanwhile, the Goldman Sachs High Beta Momentum Portfolio (GSPRHIMO)—composed mainly of chip and memory stocks—fell 19% over the past two weeks, experiencing a historic two-day sell-off.

Goldman Sachs trader Benny Quek summarized in the report, The current market mindset is still "buy the dip" rather than "sell the rally," but there is a key shift: this is no longer a "buy everything AI" market, "the market will reward quality and execution, not mere beta exposure." This judgment marks an important style inflection point for the AI-themed trades that have swept the market over the past two years.

Continued De-leveraging: Hedge Funds Accelerate Exit from Tech Sector

Goldman Sachs data shows that tech stocks have been net sold by hedge funds for four consecutive weeks. Just a week ago, Goldman’s prime brokerage reported that hedge funds sold tech stocks at a record pace ahead of the Russell index rebalancing, bringing the gross and net exposure of the "Magnificent Seven" to their lowest levels this year.

For the week ending July 2, net selling pressure mainly came from long individual stock reductions, partially offset by long macro product buying, but failing to reverse the overall trend.

In terms of fund performance, Goldman Sachs’s fundamental long/short equity strategy estimated performance fell 1.53% during the period June 26 to July 2, while the MSCI Global Total Return Index rose 1.67%, a clear gap. Among them, alpha contribution was -1.42%, with losses on both long and short sides; beta contribution was -0.11%. Systematic long/short strategies performed even worse, falling 2.09% over the same period, with alpha contribution of -2.30%, mainly dragged down by short-side losses, partially offset by a beta contribution of +0.21%.

Chip Stocks Plunge: High Beta Momentum Portfolio Falls 19% in Two Weeks

Over the past two weeks, the biggest hit was the Goldman Sachs High Beta Momentum Portfolio (GSPRHIMO), mainly composed of chip and memory stocks, which fell 19% cumulatively, including a historic two-day sell-off over the past weekend.

Regarding the nature of this sell-off, Quek believes it "is more the result of multiple factors such as quarter-end rebalancing, summer seasonal factors, crowded positions, and trading style rotation, rather than a fundamental change in market mechanics."

This judgment is crucial for investors: it means that the adjustment in tech stocks is more of a structural position cleanup, rather than a denial of the AI investment narrative itself.

Asia Flows: Japan Records Record Selling, Chinese Funds Outperform Against the Trend

In terms of regional flows, Japan experienced record net selling in June, while the selling in South Korea wiped out all net buying year-to-date.

In contrast, Asian fundamental long/short funds achieved approximately 7% monthly return in June, outperforming the broader market (which fell about 1% over the same period). Driving factors include short-term momentum, crowded longs, and tech tilt, but Korean positions and volatility factors weighed on returns.

Notably, the net selling scale in the Asian market in June almost completely reversed the record net buying in May, with the speed of capital flows reflecting the market's high sensitivity to AI-related positions.

Style Shift: From "Buy Everything AI" to "Quality First"

Quek clearly stated that the market has entered a new phase— "The 'buy everything AI' market has ended, and divergence will return. The market will reward quality and execution, not beta."

Regarding the future direction of the AI narrative, Goldman’s core conclusion is: the imbalance signals seen before the tech bubble burst in the 1990s are not yet visible, and strong earnings tailwinds can sustain the investment boom; but risks are rising—if the market continues to over-extrapolate recent trends into the future, valuation pressure will accumulate.

In terms of investor sentiment, respondents were slightly optimistic overall about risk assets. In terms of asset class preferences, developed market stocks were the most favored asset class, while credit was the least favored.

For the S&P 500 year-end target, the mainstream expectation among respondents was concentrated in the 7500 to 8000 range (Goldman’s own forecast is 8000); the federal funds rate is expected at 3.5% to 3.75%.

On the question of the biggest risk for AI trades and which sector benefits most from AI diffusion, client views showed clear divergence—which itself confirms that the "return of divergence" Quek described is happening.

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