Hedge funds and mutual funds split on the AI trade - Goldman

Hedge funds and mutual funds are taking markedly different stances on artificial intelligence, according to a report by Goldman. Hedge funds maintain a larger stake in AI-related equities compared to mutual funds, which remain relatively underweight in this sector.

The analysis revealed that hedge funds have tightened their positions in prominent AI stocks such as Alphabet, Meta Platforms, Nvidia, Broadcom, Lam Research, Marvell Technology, Cisco Systems, Hewlett Packard Enterprise, and Applied Materials. On the other hand, mutual funds have increased their investments in companies that benefit from AI infrastructure spending, but their overall exposure still lags behind benchmark levels.

The most significant divergence between the two investor groups occurred in the tech sector. Hedge funds boosted their holdings in Microsoft and Amazon, while mutual funds decreased their positions in both stocks. Meanwhile, hedge funds reduced their exposure to several other prominent AI companies, including those mentioned above.

Conversely, mutual funds showed a more favorable view of several semiconductor and memory companies. A majority of them increased their holdings in Advanced Micro Devices, Micron Technology, and SanDisk, while hedge funds reduced their positions in these stocks.

Despite these stark differences, both investor groups agreed on the importance of AI infrastructure. Goldman identified a group of 12 companies that both hedge funds and mutual funds bought during the second quarter. This list includes power companies like American Electric Power, NiSource, and Xcel Energy, as well as data center and technology infrastructure businesses such as CoreWeave, Flex, Sanmina, SiTime, Seagate Technology, and Talen Energy.

However, the contrasting trades highlight the more selective nature of institutional positioning in the AI ecosystem. Both investor groups have cut exposure to several AI-related stocks, including Viavi Solutions, Digital Realty Trust, Argan, MasTec, Corning, and EQT. This suggests that the AI trade is becoming increasingly fragmented, with investors distinguishing between various sectors expected to benefit from the next phase of AI investment.