For five straight days in October, hedge funds sold AI stocks. By the end, they had undone every AI purchase they made since the start of 2025, Goldman Sachs data shows.
Morgan Stanley says hedge funds have cut more than 8% of their total stock bets since June, their biggest retreat since at least 2017. The pain showed on stock prices, as big tech stocks crashed last week and erased $2 trillion from the market.
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The pain landed in one corner of the market. The S&P 500 barely moved through late October. Memory chipmakers Samsung, SK Hynix, Micron, and SanDisk lost more than $700 billion in under two weeks.
Why Hedge Funds Ran From AI Stocks
Hedge funds borrow to make their bets bigger. When prices fall, losses grow fast, so funds sell to cut risk. That selling drags prices lower and forces more selling.
Most were running for the exit, not betting on a crash. On the heaviest day, they sold shares they owned about 3.5 times faster than they opened new bets against stocks, according to Goldman figures.
Then came October 22. Goldman‘s basket of hedge funds’ favorite stocks fell 4.2%, its worst day since 2011. The banks prime desk summed it up.
“If last Thursday felt bad, today has been worse,”
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Steno Research recreation of Morgan Stanley data marking the October 2026 drop at -7.8% (data as of Oct. 27, 2026). Source: Steno Research via XIs the AI Bubble Bursting, or Are Funds Just Selling？
Macro investor Jordi Visser blames borrowed money, not weak demand. He estimated the leverage took 18 months to build and 75 days to unwind.
Corporate profits are up about 20%, and AI computing demand still outruns supply. SK Hynix forecasts a memory shortage until 2030. Fundstrats Tom Lee suspects one forced seller drove the slide.
Goldman sees a darker picture. The bank said the unwind looks closer to its start than its end, Deep News reported. Funds AI holdings still rank in the top 17% of the past three years.
On October 26, BeInCrypto asked whether Chinas AI bubble burst would reach America. Days later, a late-October selloff wiped about $2 trillion off the Nasdaq-100.
If Goldman is right, hedge funds still have plenty left to sell.