Hedge funds 'doubling down' on AI are fleeing software stocks: Goldman

A Goldman Sachs report indicates that hedge funds and mutual funds are increasing their allocations to semiconductor stocks while reducing holdings in software companies. According to the report, the weighting of semiconductor stocks in these funds has reached a record high, while software stocks have fallen to their lowest allocation since 2019. Goldman described this as funds 'doubling down' on artificial intelligence investments.

The shift reflects a belief among institutional investors that semiconductor companies are the primary beneficiaries of AI spending, as demand for chips used in AI training and inference continues to grow. Software companies, in contrast, are seen as facing higher competition and commoditisation risk. The report noted that the divergence between the two sectors is now at its widest in over five years.

However, the report also cautioned that such concentrated positioning risks a sharp reversal if AI spending expectations fail to materialise or if software companies demonstrate stronger revenue growth from AI products than currently priced in.