Hedge funds are dumping tech stocks at the quickest pace in 7 months after Nvidia's wild earnings report
Thibault Camus, AP; Jeff Chiu, AP
- Hedge funds that reveled in tech stocks before Nvidia's earnings are cashing out.
- The retreat has triggered net selling of stocks in the tech sector since Nvidia's earnings.
- Goldman Sachs said the performance of Magnificent Seven will begin to yield to broader economic indicators.
Nvidia's blockbuster earnings last week have been followed by big outflows from the tech sector among hedge funds as they look to take some chips off the table after piling in ahead of the chip maker's results.
Goldman Sachs' prime brokerage unit said hedge funds have been selling tech at the fastest pace in seven months after a six-week period of buying before Nvidia reported results last Wednesday.
That's triggered net sales in the AI-fueled tech sector for four trading sessions in a row since last Thursday, the day after Nvidia sent investors into a frenzy and added $267 billion in market cap in a single trading session.
"Despite the 'good vibes' last week and strong NVDA earnings on Wed, the NDX has traded lower 4 of the last 5 sessions, as price action and activity levels have started to show some more 2-way action to it, raising some tension about the sustainability of momentum from here," Goldman's Peter Callahan wrote in the note.
Hedge fund investors have shifted their focus to other high-quality stocks, with cash redirected from the tech trade to real estate, consumer staples, and materials, the note said.
Callahan cautioned that as the Magnificent Seven wrapped up their earnings season, their performance should begin to yield to broader economic indicators such as inflation data, as well as shifts in the Fed's interest rate timelines.
That said, market confidence in tech stocks remains robust, with Nvidia alone driving 22% of the S&P's weekly gain last week. The put-call skew, a key measure of investor fear, was down, while retail trading in Nvidia also surged to the 99.96th percentile in the one-week average notional amount traded over the last five years.