Hedge Funds Launch Biggest Tech Stock Pullback In Over 10 Years— What's Going On?

Hedge funds are rapidly dialing back their exposure to U.S. technology stocks, marking the most aggressive pullback in over a decade, according to market commentary from The Kobeissi Letter.

Largest Two-Week Reduction in Years

In a Sunday post on X, the letter stated that hedge funds have recorded their biggest two-week reduction in U.S. information technology exposure in the past 10 years, excluding the extraordinary volatility seen during the meme stock frenzy in early 2021.

The letter said the shift was "driven by long sales outpacing short covers at a ratio of 1.5 to 1." It marked the move as profit-taking, with funds "cashing-in massive profits in tech."

Sell-Off Mirrors Michael Burry Move

The trend aligns with moves by investors such as Michael Burry, who disclosed purchasing January 2027 puts on the iShares Semiconductor ETF (NASDAQ:SOXX) at a strike price of $330, signaling a potential 27% drawdown from its recent highs.

Burry’s actions came after a historic 18-day rally in the semiconductor sector, which he attributed to technical rather than fundamental factors.

Semiconductors Lead The Pullback

The letter wrote, "Nearly every subsector saw exposure cuts," with the steepest reductions concentrated in semiconductors and semiconductor equipment. These segments had previously been among the top-performing areas within tech.

The two largest semiconductor ETFs recorded historic monthly gains. SOXX surged 40.4% in April, marking its largest monthly gain in 25 years. In contrast, the VanEck Semiconductor ETF (NASDAQ:SMH) rose 32.2%, its best month ever.

The surge in semiconductor stocks reflects their growing contribution to the U.S. equity market. The S&P 500 semiconductor industry now accounts for a record 41.9% of the total market cap of the information technology sector, more than doubling since the 2022 bear market.

Magnificent Seven See Persistent Selling

The so-called "Magnificent Seven" mega-cap tech stocks have also come under pressure, with hedge funds selling these names in "4 of the last 5 trading sessions," the letter added.

The move came as major tech firms collectively announced plans to spend $710 billion on AI over the next few years, with Amazon.com (NASDAQ:AMZN) committing $200 billion and Microsoft Corp. (NASDAQ: MSFT) $190 billion.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by a Benzinga editor.

Image via Shutterstock