AI in action · Markets
Hedge Funds Are Underweight AI for the First Time Since 2023
Hedge funds are underweight the AI trade for the first time since early 2023, LPL Research says, but the selling looks like de-risking, not a bearish call.
For almost three years, being long AI was the crowded trade among hedge funds. According to LPL Research, which analysed prime brokerage data from Goldman Sachs and Morgan Stanley, they are now underweight the broad AI trade for the first time since early 2023, as reported by The Motley Fool on November 11.
The way they got there is the interesting part. LPL found that funds sold existing holdings about 3.5 times faster than they opened new short positions, and that gross exposure is down about 8% from its June peak, the largest sustained stretch of long/short de-risking in more than 15 years. "That pattern indicates liquidation rather than a broad expression of a negative fundamental view," LPL wrote. In other words, managers cut what they owned because losses and risk limits forced them to, not because they built a case against AI.
Morgan Stanley's own figures, reported by Hedgeweek the same day, tell a similar story. Global equity hedge funds cut risk at the fastest pace in more than a decade in the first week of November, and the gross market value of long/short equity positions is down 10.7% since late June. US net leverage among long/short managers fell 5 percentage points in a single session to 42%, while gross leverage among Asian long/short funds dropped to 124%, close to the April 2025 low of 123%.
The pressure came from a sharp week: in the week to November 6 the information technology sector fell 8.2% and the Russell 1000 Growth index 4.8%, according to LPL. Asia-based managers lost an average of 1.5% that week while the MSCI Asia-Pacific index fell more than 5%.
Should anyone read this as a contrarian buy signal? LPL itself warns against it, writing that "low exposure alone is not a buy signal" and that any rebound "may fade if fundamental investors do not participate." Light positioning means fewer forced sellers if prices drop again; it says nothing about whether AI earnings will justify current prices.
Sources: The Motley Fool — Hedge funds just turned against AI stocks for the first time since 2023 (Nov 11, 2026), citing LPL Research; Hedgeweek — Hedge funds cut equity risk at fastest pace in a decade amid AI selloff (Nov 11, 2026)