Global hedge funds increasingly rotated within the artificial intelligence trade during July, reducing exposure to some of the sector’s most crowded names while favouring companies showing clearer evidence that heavy AI investment is translating into revenue and earnings growth.
The shift points to a refinement of risk rather than a broad retreat from AI, according to the latest Data Insights Crowding Report from Hazeltree. The analysis covers anonymised securities-finance data from more than 700 hedge funds across approximately 16,000 securities.
Within the so-called Magnificent Seven, Tesla and Amazon saw modest increases in the number of funds holding long positions during July. Apple, Meta and Nvidia, however, experienced notable declines in long holders and increases in the number of funds positioned short.
The repositioning reflects growing scrutiny of whether the enormous capital expenditure by technology companies to build AI infrastructure will ultimately generate sufficient commercial returns.
“Global hedge funds navigated the market rotation with measured adjustments rather than broad de-risking,” said Tim Smith, managing director at Data Insights. Investors appeared to be placing greater emphasis on fundamentals such as earnings, revenue growth and the ability of companies to commercialise AI, he said.
Hedge fund interest in semiconductor stocks remained broadly stable following the first half of the year. Around 70% of companies in the PHLX Semiconductor Sector Index had net long positioning in July, unchanged from June.
There were nevertheless significant changes at the individual stock level.
Intel moved from being short-biased to long-biased during July, with net long exposure rising above 50% and the ratio of funds holding long positions to those shorting the stock moving closer to parity.
Marvell moved in the opposite direction, shifting from long-biased to short-biased.
Applied Materials remained the most crowded semiconductor position on the long side, followed by Lam Research and Nvidia. ON Semiconductor was the most crowded short, followed by Microchip Technology and Intel.
The data suggests hedge funds are becoming more selective in their exposure to the semiconductor industry rather than simply cutting the sector wholesale.
SpaceX was among the most notable individual-stock developments in the report. The ratio of funds holding the stock long compared with those holding it short fell from 2.8 in June to just 0.55 in July.
That shift coincided with a 31% decline in the stock between July 1 and July 31, highlighting the extent to which hedge funds adjusted positioning as the shares came under pressure.
Across North America, Nebius recorded the biggest increase in short crowding among large-cap companies. Whirlpool, Core Scientific and Repligen were among the mid-cap stocks seeing increased short interest, while Ziff Davis, PureCycle and Enovix featured among the small-cap names with rising short crowding.
On the long side, increased fund participation was concentrated in companies including Darling Ingredients, Monday.com, EXL Service, Patterson-UTI and Kirby.
The repositioning extended beyond US technology stocks.
In Europe, the report identified Bayerische Motoren Werke as a large-cap stock with increased short crowding, while Stora Enso and Weir Group saw greater short positioning among mid-cap companies. Yellow Cake, Vivendi, Bytes Technology Group and Kinnevik were among the small-cap names with rising short crowding.
EMEA long crowding increased in companies including Savills, Galliford Try and Forterra.
In Asia-Pacific, short crowding increased in smaller companies including Minerals 260 and Lotus Resources. Meanwhile, BNK Financial Group and TPG Telecom saw greater long participation among mid-cap stocks, alongside several small-cap names including Ennoconn, Wisdom Marine Lines and Champion Iron.
The report’s crowding measure compares the number of hedge funds holding long or short positions in individual securities against their peers within defined regional and market-cap groups.
The July data therefore points to a market in which hedge funds are continuing to participate in the AI and technology themes, but with a greater focus on identifying companies capable of converting AI-related investment into sustainable commercial growth.
Rather than abandoning the AI trade, managers appear to be reallocating capital towards the potential winners from the next phase of the cycle — companies where monetisation, earnings and revenue growth can provide greater justification for increasingly demanding valuations.
