Hedge funds became more cautious on some of the stocks at the centre of the AI investment boom in August, as growing reliance on debt to finance AI infrastructure raised questions over whether future cash flows will be sufficient to cover funding costs.
That’s according to the Data Insights, the institutional hedge fund market intelligence platform from Hazeltree, with the firm’s August Crowding Report finding that none of the Magnificent Seven stocks recorded an increase in the number of hedge funds holding long positions during the month. Microsoft and Nvidia saw relatively modest declines in long holders, while Amazon, Tesla, Meta, Alphabet and Apple experienced larger reductions.
Short positioning increased in Amazon, Alphabet and Apple, while Meta also saw a more moderate rise in the number of funds betting against the stock. Nvidia was the only Magnificent Seven member to record a decline in short fund participation.
Alphabet underwent one of the more notable shifts. Its long-to-short fund count ratio fell from 1.70 in July to 0.92 in August, meaning funds with short positions outnumbered those holding the stock long for the first time this year, according to Data Insights.
The shift coincided with a decline in Alphabet’s share price during August. The stock fell from a high of $377.65 on 4 August to $340.67 on 20 August before ending the month at $348.06.
“While AI monetisation was a particularly important consideration for investors in the previous month, the concern we observed from investors stemmed from whether future cash flows generated will cover the financing costs of the debt funding them,” said Tim Smith, managing director at Data Insights, Hazeltree.
The changing positioning comes as the AI infrastructure buildout increasingly relies on external financing. Smith pointed to initiatives designed to turn AI infrastructure into an investable asset class, including financing structures intended to mobilise more than $500bn of third-party capital over time.
Semiconductor stocks also saw a modest reduction in bullish positioning. Data Insights found that 66.7% of the 30 companies in the PHLX Semiconductor Sector Index had net long positioning in August, down from 70% in July.
MACOM Technology Solutions was among the notable changes, switching from short-biased to long-biased positioning. Its long-to-short fund count ratio increased from 0.98 times to 1.23 times, while its net long exposure rose from 48.3% to 63.9%.
Applied Materials remained the most crowded long position among semiconductor stocks, followed by Nvidia and Lam Research. On the short side, Skyworks Solutions was the most crowded name, ahead of ON Semiconductor and Coherent.
The broader data also showed increased short interest in several consumer and economically sensitive companies in North America. Keurig Dr Pepper was the main large-cap name to record a rise in short fund participation of more than 10% month-on-month, while Norwegian Cruise Line and Transocean were among the mid-cap stocks seeing increased short crowding.
In Europe, Lloyds Banking Group and Ahold Delhaize were among the large-cap companies to attract greater long participation, while Pharming was the only small-cap EMEA name highlighted for a more than 10% increase in short fund counts.
Across Asia-Pacific, increased long participation was recorded in mid-cap companies including Nickel Industries and GWM, while Tsumura was the only small-cap name highlighted for a significant increase in short fund participation.
The report is based on anonymised positioning data covering approximately 16,000 securities and more than 700 global hedge funds using Hazeltree’s securities-finance platform. The analysis measures the relative concentration of long and short positions across regions and market-cap groups.
The August data suggests that while AI remains a major focus for hedge funds, positioning is becoming more differentiated as investors scrutinise the funding requirements behind the sector’s rapid expansion.
