Global hedge funds sold technology shares to the highest level in nearly eight months in the week ended Feb. 23, according to Goldman Sachs, spurring bets on the sector as tech stocks surged on Nvidia Inc’s (NVDA.O) latest earnings report.
Hedge funds’ selling of technology stocks has reached its highest level in five years, according to a memo published by Goldman Sachs on Friday and seen by Reuters on Monday.
Technology was the most sold-off sector last week, Morgan Stanley said in a separate note.
Stock indexes including the tech-heavy Nasdaq (.NDX) rose to record highs on optimism about artificial intelligence. Chipmaker Nvidia (NVDA.O) added $277 billion to its shares on Thursday, the biggest one-day gain in Wall Street history, after it reported better-than-expected quarterly earnings.
But Goldman Sachs said there were signs sentiment was shifting, with twice as many hedge funds shorting tech stocks in anticipation of a fall as those buying them.
Hedge funds shorted shares of technology companies across the industry, as they unwound long positions and added short positions in manufacturing and service equipment for the semiconductor industry, tech hardware, storage and IT services, the bank said.
Goldman Sachs said speculators had increased short selling in software companies, while Morgan Stanley said hedge funds had made bets against semiconductor and tech hardware companies.
But traders remain reluctant to fully unwind positive positions in tech stocks, according to a separate note from Goldman Sachs, which showed Nvidia call options are at a two-year high.
These are derivative bets where a trader goes long only if the stock price rises above a certain price threshold – that is, a way of expressing a positive position in a stock only if the stock price rises by a certain amount.
An initial report from Goldman Sachs showed that speculators were generally shorting U.S. stocks, leading to the biggest sell-off in the region’s stock markets in five weeks.
Sustained price gains by U.S. service sector companies highlight the strength of inflation, reducing expectations of interest rate cuts in 2024 and weakening hopes for a soft landing.
Traders dumped technology, health care and industrial stocks, instead buying the most consumer staples stocks in 10 weeks, according to Goldman Sachs, and adding companies that make products people buy every day.
Morgan Stanley said the hedge fund had sold stocks from Monday through Wednesday but changed its mind after Nvidia’s tech rally on Thursday and bought back all of the shares it had sold, mainly in industrials, materials and financial stocks.