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Hedge funds cut stakes in Magnificent Seven to invest in broader AI boom

By Louis Goss

Hedge funds started cutting their stakes in the Magnificent Seven in the first quarter of 2024 and investing in broader artificial intelligence stocks instead, a new Goldman Sachs analysis shows.

Money managers trimmed their positions in mega-cap stocks as they piled into power and infrastructure companies that could benefit from an AI boom, the analysis of 707 hedge funds with $2.7 trillion in equity positions shows.

Those funds increased their positions in Apple (AAPL) but cut their positions in Magnificent Seven stocks including Google (GOOG), Amazon (AMZN), Microsoft (MSFT), Meta (META), and Nvidia (NVDA), while keeping their Tesla (TSLA) holdings roughly the same.

Investment funds instead looked to capitalize on growth in the wider AI sector, by investing in firms that supply the broader AI universe, including chip makers Marvell Technology (MRVL) and Micron Technology (MU) and utilities including AES Corp (AES).

Money managers also piled into companies that make electrical components, including Littelfuse (LFUS), technology distribution companies like TD Synnex (SNX), and companies that mine the metals needed by the AI sector, including copper miner Freeport-McMoRan (FCX).

At the same time, they upped their stakes in companies that could benefit from AI technologies themselves, including software maker Adobe (ADBE), pharmacy owner Walgreens Boots Alliance (WBA) and insurance company First American Financial Corporation (FAF) - as well as tech giant Apple.

Hedge funds' investments in utilities and financials companies saw them make their biggest tilts towards the two sectors compared to any point in the past 10 years, as power generators Vistra Corp (VST) and NextEra Energy (NEE) also joined Goldman Sachs' VIP list of the 50 most popular stocks.

The hedge fund push into utilities followed a bumper performance from the sector that saw it take third-place position as the highest-returning industry in 2024, with gains of +15%, behind those offered by information technology companies (+16%) and communication services firms (+21%).

All the Magnificent Seven stocks, apart from Tesla, nonetheless, held their positions as hedge funds' six most popular holdings, as the ongoing rally boosted their weightings in money managers portfolios - even as those same funds lowered their stakes.

The strong performance posted by chip makers in the first quarter also boosted the semiconductor industry's weighting in hedge funds' portfolios to record-highs of 6.5%.

Hedge funds' portfolios remained heavily concentrated, with the typical money manager holding 70% of its long portfolio in its top 10 positions, as the most popular stocks continued making outsized gains of 16% in the year-to-date 2025 versus 7% for the equal-weight S&P 500 SPX.

-Louis Goss

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


(END) Dow Jones Newswires

05-22-24 0449ET

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