Hedge funds apparently saw the writing on the wall for stocks associated with artificial intelligence (AI).
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U.S. investment bank Goldman Sachs (GS) says that hedge funds began rotating out of AI-related stocks months before China’s new AI model called “DeepSeek” emerged to challenge the U.S. technology sector. Many hedge funds were already out of the AI trade before today’s (Jan. 27) steep selloff that has the Nasdaq Composite index down nearly 600 points or about 3%.
According to a research note from Goldman Sachs, many hedge funds had already fled their bets on AI stocks, avoiding much of the carnage now being seen in the market. Hedge funds have also been selling stocks adjacent to the technology sector, including shares of the utility companies that were expected to power AI data centers. Utility stocks are among the hardest hit by the current selloff.
Avoiding the Market Carnage
Goldman Sachs notes that many hedge funds began dumping stocks related to AI last summer and have been reluctant to return with conviction to the tech sector. Traders at large hedge funds tend to sell a stock when they feel its share price will decline or to get out of a losing bet and minimize losses.
At best, hedge fund managers appear to be taking a wait-and-see approach to AI stocks, having anticipated a shakeout for the industry after a big bull run over the past 18 months. Big U.S. technology companies have been investing tens of billions into developing AI technologies and infrastructure, and those investments are now being called into question by the market, says Goldman Sachs.
The stock of Goldman Sachs has gained 70% over the last 12 months.
Is GS Stock a Buy?
The stock of Goldman Sachs has a consensus Strong Buy rating among 16 Wall Street analysts. That rating is based on 12 Buy and four Hold recommendations issued in the last three months. The average GS price target of $665.20 implies 5.37% upside from current levels.
