Hedge funds are increasingly divided over whether to continue riding the AI-driven equity rally or reposition for a potential correction after a multi-year surge in technology valuations has created sharp performance divergence across the industry, according to a report by Bloomberg.
Some of the largest and most established managers are adopting a more cautious stance. Viking Global Investors has reduced net exposure below its historical average, with founder Andreas Halvorsen warning investors that elevated valuations, heavy capital expenditure linked to AI investment and a fragile macro backdrop leave limited margin for error. He has also highlighted concerns around persistent inflation, geopolitical uncertainty and slowing growth.
Quantitative heavyweight Renaissance Technologies has also taken a more defensive positioning, with its models anticipating a potential pullback after the market’s extended rally. Both firms have lagged more aggressively positioned peers during the ongoing technology upswing.
By contrast, other managers have remained firmly committed to the AI trade. Coatue Management has delivered strong gains this year, driven by significant exposure to large-cap technology names benefiting from AI adoption. Portfolio managers including Divya Nettimi at Avala Global and Alex Sacerdote at Whale Rock Capital Management have also reported outsized returns, with technology-heavy positioning acting as the primary performance driver.
The divergence reflects a broader split within the hedge fund industry over whether AI represents a multi-year structural super-cycle or a market narrative that has already run ahead of fundamentals. Bullish managers argue that adoption is still in its early stages and that earnings power in leading technology platforms remains under-appreciated, while more cautious investors point to stretched valuations and increasingly concentrated index performance.
Recent volatility has underscored the sensitivity of the trade. Sharp drawdowns in major indices such as the Nasdaq 100 following tech-led selloffs have highlighted how heavily positioned portfolios can swing with sentiment around a small group of mega-cap stocks.
Despite the disagreement, exposure data suggests most technology-oriented hedge funds remain net long the sector, with allocations to US tech equities at elevated levels relative to historical averages. However, performance dispersion has widened significantly, with returns increasingly dependent on positioning within a narrow group of AI-linked winners.
