Global hedge funds are doubling down on artificial intelligence-linked companies, with semiconductor firms emerging as the single biggest Wall Street bet entering the second quarter of 2026, according to a new Goldman Sachs Hedge Fund Trend Monitor report.
The report paints a picture of a market increasingly driven by AI optimism, where investors are funnelling billions into chipmakers, data centres and AI infrastructure firms, while pulling back from many traditional sectors. At the same time, the report also reveals a growing sense of caution beneath the surface, with rising short positions and elevated leverage levels hinting at mounting market risks.
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Goldman Sachs analysed holdings of 1,059 hedge funds managing USD 4.6 trillion in gross equity positions to understand where sophisticated investors are placing their bets.
“Hedge funds entered Q2 2026 doubling down on the AI trade,” Goldman Sachs said in the report.
Why Are Hedge Funds Pouring Money Into AI Stocks?
The AI boom continues to dominate global markets as investors increasingly believe artificial intelligence will reshape industries ranging from cloud computing to manufacturing and healthcare.
Goldman Sachs said hedge funds dramatically increased exposure to technology stocks at the start of the quarter. The report noted that funds “lifted their net tilt to the Information Technology sector by +853 bp, the largest quarterly increase to the sector on record.”
The biggest beneficiaries were companies tied directly to AI infrastructure. These include semiconductor manufacturers, systems software firms, hardware companies and application software businesses.
“The largest increases occurred in Semiconductors (+428 bp), Systems Software (+167 bp), Tech Hardware (+147 bp), and Application Software (+133 bp),” the report stated.
The report added that hedge funds increased ownership across “much of the AI infrastructure complex” during the quarter.
Why Have Semiconductor Companies Become Wall Street’s Favourite AI Bet?
Chipmakers have emerged as the clearest winners of the AI race because advanced artificial intelligence systems require enormous computing power. That demand has triggered a surge in spending on graphics processors, memory chips, networking systems and data centre equipment.
Goldman Sachs said hedge funds now hold their highest-ever exposure to semiconductor companies.
“Hedge funds entered Q2 2026 with the most elevated long portfolio weight in Semiconductors on record, at 10 per cent,” the report said, adding that the “6 per cent weight in Software marks the lowest since 2019.”
This suggests investors increasingly prefer hardware and infrastructure companies over traditional software businesses when positioning for the AI boom.
Among the companies seeing the biggest rise in hedge fund popularity were Lam Research, Applied Materials, Analog Devices, Micron Technology and Intel.
Goldman Sachs said semiconductor companies have become the preferred way for hedge funds to play the AI boom.
How Much Have AI Stocks Boosted Hedge Fund Returns?
The sharp rally in AI-linked stocks has become one of the biggest drivers of hedge fund performance in 2026.
“The most popular hedge fund long positions within Info Tech have returned 62 per cent YTD,” the report said.
Goldman Sachs added that the average equity long/short hedge fund has generated a 7 per cent return so far this year, with technology holdings contributing heavily to those gains.
The report also highlighted growing concentration within hedge fund portfolios. According to Goldman Sachs, “The typical hedge fund holds 72 per cent of its long portfolio in its top 10 positions.”
That concentration reflects growing conviction around a relatively small group of dominant AI and technology companies.
Mega-cap tech firms continue to dominate hedge fund portfolios, with Amazon, Nvidia, Alphabet, Microsoft and Meta Platforms emerging as the top five hedge fund long positions.
“Mega-cap tech stocks remain the most popular hedge fund long positions,” the report stated.
Why Are Investors Still Becoming More Cautious?
Despite the enthusiasm surrounding AI, Goldman Sachs also pointed to signs that investors are becoming increasingly defensive.
One key warning signal is rising short interest across the broader market. Short selling typically increases when investors expect weakness or declining stock prices.
“Short interest for the median S&P 500 stock has continued to rise and now equates to 3 per cent of market cap, the highest level since 2011,” the report said.
The report also warned that hedge funds are operating with elevated leverage, meaning they are borrowing more money to amplify investments.
“Gross leverage ranks in the 94th percentile vs. the last 5 years,” the report stated.
Higher leverage can magnify profits during rallies, but it can also sharply increase losses if markets reverse suddenly.
Another notable trend is the growing use of exchange-traded funds (ETFs) by hedge funds to gain broader market exposure.
“The 4.9 per cent ETF share of hedge fund long portfolios represents the highest level since the GFC,” Goldman Sachs said, referring to the Global Financial Crisis.
Together, these trends suggest that while hedge funds remain highly bullish on AI and semiconductor companies, investors are also preparing for a more volatile market environment as valuations continue to climb.