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Goldman analysts say hedge funds favor AI companies, with AI infrastructure most favored.

TraderKnows
TraderKnows
05-22

The AI boom is sweeping the hedge fund market, particularly benefiting companies involved in building AI infrastructure.

Since the beginning of 2024, the average long/short equity hedge fund in the United States has achieved an 8% return, primarily driven by the strong performance of well-known stocks.

Apart from Tesla, the Magnificent 7 group occupies the top six most popular long positions among banks, with a total year-to-date return of 16%.

However, reflecting a broader market outlook, hedge funds have reduced their exposure to large-cap tech stocks in search of other alpha opportunities.

Goldman Sachs strategists stated in a report on Tuesday, "AAPL is an exception, entering our list of stocks with the highest growth in hedge fund popularity – the Rising Stars list."

They added, "Funds continue to buy cyclical stocks, including boosting the financial sector to its largest tilt since 2012."

BNY Mellon, Discover Financial Services, and S&P Global have also joined Goldman's Rising Stars stock list.

While reducing exposure to large-cap tech stocks, hedge funds are also increasing investments in a broader array of AI beneficiaries, particularly companies involved in building the infrastructure essential for AI growth.

More specifically, according to Goldman Sachs data, Marvell Technology, Synnex Corporation, AES Corporation, and Littelfuse have seen the largest growth in hedge fund popularity in this sector.

Strategists reported, "Among the various phases of AI trading, companies affected by AI infrastructure investments have performed the best recently and sparked the most interest in our client conversations."

They added, "Due to this exceptional performance, the weight of semiconductors in US hedge funds' long portfolios surged to a record 6.5% in the first quarter."

Goldman specifically highlighted that MRVL is a top Rising Star in hedge fund investments. Meanwhile, Micron Technology, a memory chip manufacturer focused on AI, has been added to their most popular long positions basket.

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Technology stocks refer to the shares of companies engaged in research and development, production, and sales within the technology industry. These companies are primarily involved in information technology, telecommunications, semiconductors, software development, and other sectors. Their shares are often considered to have higher growth potential and risk.

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