Hedge funds’ top holdings have performed much better this year than in 2022 or 2021. Well-timed investments in large-cap tech companies and cyclical stocks lifted returns. Here are eight artificial intelligence beneficiaries that hedge funds are gravitating toward. Hedge funds took advantage of the robust market rally in the first half of 2023 by buying shares of technology giants connected to artificial intelligence and economically sensitive companies, according to Goldman Sachs.
The Wall Street titan examined 744 hedge funds that had $2.4 trillion in equity positions at the start of the third quarter in an August 21 report, in order to see how long-short money managers were performing after their favorite holdings face-planted for two straight years.
For the first five months of the year, a handful of mega-cap tech stocks with exposure to AI carried the S&P 500, much to the delight of hedge fund managers.
Goldman Sachs Goldman Sachs found that the five most popular stocks among hedge funds, as measured by how often they’re a top-10 holding, are all tech titans that have excelled in 2023: Amazon (AMZN), Microsoft (MSFT), Meta Platforms (META), Alphabet (GOOGL), and Nvidia (NVDA).
Since then, top tech stocks have stalled while the rest of the market caught up.
Renewed optimism about growth caused stocks in economically sensitive sectors to outperform, and hedge funds made large, well-timed bets on those firms that boosted their returns in Q2, wrote Ben Snider, a senior strategist at Goldman Sachs Research, in the report. That move came at the expense of tech and other defensive stocks, which underperformed in that span.
Goldman Sachs “Hedge funds have rotated incrementally toward cyclicals in each of the last four quarters,” Snider wrote. “Their long portfolios are now tilted more pro-cyclically than they have been since 2014.”
The heaviest investments from hedge funds recently have been to energy and financials stocks, Snider wrote. Long-short managers have been skeptical of the financials sector for years, hence their underweight position of about 2 percentage points, though they’re now more invested in the group relative to the Russell 3000 than they’ve been in over a decade, the strategist noted.
8 AI winners that hedge funds still loveWhile hedge funds haven’t turned their back on tech, it may appear that way at first glance.
Long-short managers’ allocation to the seven biggest tech stocks — the five previously mentioned companies plus Apple (AAPL) and Tesla (TSLA) — seems high at 11%, but it’s less than half the 24% weighting those names have in the Russell 3000 index, Snider pointed out. By that definition, hedge funds are actually the most underweight tech they’ve been since 2007.
Goldman Sachs However, it’s also possible to argue that hedge funds have never been warmer toward big tech. Long portfolio weights from hedge funds in large-cap tech and semiconductor companies each hit record highs at the start of the third quarter, Snider wrote, which reflects excitement about AI.
Goldman Sachs sees serious potential for AI to boost productivity and earnings, and its analysts see 11 stocks as especially well-suited to benefit from the AI investment boom in the near term. Of those names, Snider noted that eight have gotten more popular among hedge funds in 2023.
Below are the eight AI-related stocks Goldman Sachs believes will be AI beneficiaries that have also received net buys this year from hedge funds analyzed in the report. Along with each is its ticker, industry, the number of hedge funds that owned it in December 2022 and June 2023, and the increase in the number of hedge funds that owned the stock in that span.