Hedge funds pull back on AI stocks amid debt concerns

Hedge funds reduced long holdings in AI-linked stocks in August, the August Crowding Report from Hazeltree’s Data Insights unit found. The report is based on anonymised positions covering about 16,000 securities and more than 700 hedge funds that use Hazeltree’s securities-finance platform.

None of the so-called Magnificent Seven saw an increase in the number of hedge funds holding long positions in August. Microsoft and Nvidia posted modest declines in long holders, while Amazon, Tesla, Meta, Alphabet and Apple recorded larger reductions.

Short positions rose in Amazon, Alphabet and Apple, and increased modestly for Meta. Nvidia was the only member of the group to record a decline in short fund participation.

Alphabet showed one of the clearest shifts. Its long-to-short fund count ratio fell from 1.70 in July to 0.92 in August, meaning funds with short positions outnumbered long holders for the first time this year. Alphabet’s share price moved from a high of $377.65 on Aug. 4 to $340.67 on Aug. 20 and finished the month at $348.06, the report noted.

Tim Smith, managing director at Data Insights, Hazeltree, observed: “While AI monetization was a particularly important consideration for investors in the previous month, the concern we observed from investors stemmed from whether future cash flows generated will cover the financing costs of the debt funding them.”

Hazeltree linked the change in hedge fund positioning to heavier reliance on external financing for the AI infrastructure buildout, and highlighted initiatives intended to make AI infrastructure an investable asset class, including financing structures designed to mobilise more than $500 billion of third-party capital over time.

Semiconductor stocks saw a modest reduction in bullish positioning. Data Insights found that 66.7% of the 30 companies in the PHLX Semiconductor Sector Index had net long positioning in August, down from 70% in July. MACOM Technology Solutions moved from short-biased to long-biased positioning: its long-to-short fund count ratio rose from 0.98 to 1.23 and its net long exposure increased from 48.3% to 63.9%.

Applied Materials remained the most crowded long among semiconductor names, followed by Nvidia and Lam Research. On the short side, Skyworks Solutions ranked as the most crowded short, ahead of ON Semiconductor and Coherent.

The report also recorded rising short interest in several North American consumer and economically sensitive names. Keurig Dr Pepper was the main large-cap name to see a month-on-month rise in short fund participation of more than 10%. Mid-cap stocks that attracted increased short crowding included Norwegian Cruise Line and Transocean.

Regional shifts appeared outside the US. In Europe, Lloyds Banking Group and Ahold Delhaize drew greater long participation, while Pharming was the only small-cap EMEA name flagged for a more than 10% rise in short fund counts. In the Asia-Pacific region, mid-cap companies including Nickel Industries and GWM recorded higher long participation, and Tsumura was the only small-cap name with a notable rise in short fund participation.

The report measures the relative concentration of long and short positions across regions and market-cap groups. Hazeltree’s August data showed AI remained a focus for hedge funds and that positioning grew more differentiated as funds assessed the funding requirements tied to AI-related expansion.