Hedge funds turn underweight on AI for first time since 2023 - Morgan Stanley

What happened

Morgan Stanley says hedge funds have shifted their exposure to the broader artificial-intelligence trade to underweight for the first time since early 2023. Its data showed gross hedge fund flows fell 8% from their June peak, while managers reduced overall positions despite some short covering.

Confirmed

Global impact / market context

Reduced overall positions can weaken buying support for technology stocks and AI-related investments. The reported concern is that large AI infrastructure investments are not producing returns quickly enough; if that persists, companies could face pressure to justify spending, while investors may remain cautious about adding exposure.

Analyst inference

Recent equity buying was reportedly driven mainly by investors closing bearish bets, rather than building new long positions, and funds’ purchases leaned heavily on index and ETF products. That suggests some improved positioning reflected fewer negative bets, not clear renewed conviction in individual stocks.

Analyst inference

What to watch

1. Watch whether hedge funds rebuild broader AI exposure after the reported pullback; sustained reductions could limit demand for technology shares even if short covering continues. Analyst inference
2. Check upcoming company earnings for evidence that AI infrastructure spending is generating returns quickly enough to ease the concern described in the article. Analyst inference
3. Track whether equity purchases shift from closing bearish bets toward new long positions, since the article says recent buying came almost entirely from unwinding shorts. Analyst inference

Evidence

• seekingalpha.com