Morgan Stanley’s Nick Savone sees professionals cutting risk to yearly lows while individual investors keep buying the AI bellwether
Wall Street’s professionals and its weekend warriors are reading the same market and reaching opposite conclusions. According to Morgan Stanley’s Nick Savone, hedge funds have pulled back hard from the AI trade, while retail investors have been aggressively buying Nvidia.
The pros head for the exits
The backdrop is rough. Savone was assessing the damage from what he described as a record 70% tech momentum crash, a violent unwind in the stocks that had been leading the market higher.
Hedge funds responded by de-risking aggressively. Savone put their net leverage at the 0th percentile of the past year.
That figure deserves a plain-language gloss. Net leverage measures how much market exposure funds are carrying after offsetting their long bets against their short bets. Sitting at the 0th percentile means funds are running lighter exposure now than at any other point over the past twelve months.
Savone also framed the AI trade as being at mile 20 of the marathon.
Retail keeps buying the dip
While institutions trimmed exposure, individual investors went the other direction. Savone’s read is that retail traders were heavy buyers of Nvidia, the chipmaker that has become the default proxy for AI spending.
According to the research summary, Nvidia had been Morgan Stanley’s top semiconductor pick in early October, carrying a $300 price target.
That status did not last. The stock subsequently fell more than 25%, and the research indicates Nvidia was removed from the top-pick slot in November after the decline.
The market bounced anyway
The broader tape did not collapse under the weight of hedge fund selling. The S&P 500 rose 2.5% in the week following Savone’s commentary, according to the research findings.
That gain snapped a four-week losing streak for the benchmark index.
The rebound matters because it arrived while professional positioning sat at yearly lows. Funds that cut exposure ahead of a bounce are now holding less of the upside they spent most of the year chasing.
Why the split matters
When institutional and retail flows diverge this sharply, someone eventually gets proven wrong. Hedge fund leverage at the 0th percentile of the past year means the professional crowd has very little left to sell.
The research summary suggests retail demand could help establish a floor under certain stocks while institutions move cautiously. It also flags the possibility of a rebound if institutional sentiment stabilizes and rotates back toward tech.
The research notes that the gap between institutional and retail behavior could drive bigger price swings in tech equities, especially if professionals start re-entering in a hurry.
What to watch next
Positioning data will be the key tell. If hedge fund net leverage starts climbing from its yearly low, it would suggest professionals are rejoining the trade they just abandoned.
Nvidia’s price action is the second signal. The stock has effectively become a referendum on AI enthusiasm, and retail investors have made their vote clear.
The S&P 500’s ability to build on its 2.5% weekly gain is the third. One up week after four down ones is a pause in the selling, not proof of a new trend.
Savone’s marathon framing may end up being the most useful lens. At mile 20, the runners who paced themselves and the ones who sprinted early start to separate. Which group hedge funds and retail investors turn out to be will become clearer as the remaining miles play out.
Disclosure: This article was edited by Vivian Nguyen. For more information on how we create and review content, see our Editorial Policy.