Jonathan Ponciano, The Motley Fool Wed, November 11, 2026 at 4:43 PM EST 4 min read NVDA -0.04% Trade NVIDIA on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Last week was rough for anyone holding AI stocks. For the week ending Nov. 6, the information technology sector fell 8.2%, and the Russell 1000 Growth index dropped 4.8%, according to LPL Research.
Hedge funds were among the biggest sellers. And the way they sold says a lot about whether regular investors should follow.
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In a note on Wednesday, LPL analyst Michael McClain wrote that hedge funds are now underweight the broad AI trade for the first time since early 2023, citing trading data from Goldman Sachs and Morgan Stanley.
The pullback didn't start last week. Hedge funds' gross exposure, the total value of their bets for and against stocks, has fallen about 8% from its June peak. LPL calls it the largest sustained stretch of long/short stock de-risking in more than 15 years.
Hedge funds sold stocks they already owned roughly 3.5 times faster than they opened new short positions, which are bets that a stock will fall.
In other words, most managers weren't predicting a crash. They were cutting risk. "That pattern indicates liquidation rather than a broad expression of a negative fundamental view," LPL wrote.
Crowding made it worse. AI stocks had become among the most widely held names by both hedge funds and traditional funds. When everyone owns the same stocks and decides to lighten up at once, prices can fall fast, regardless of how the underlying businesses are doing.
On Wednesday, AI stocks bounced hard after CoreWeave (NASDAQ:CRWV) reported strong results and raised its revenue forecast. CoreWeave jumped 25%, Dell Technologies (NYSE:DELL) rose 12%, Oracle (NYSE:ORCL) rose 9%, and the Invesco QQQ Trust (NASDAQ:QQQ), which tracks the Nasdaq-100, gained 2.3%.
But LPL warns that not every rally is what it appears to be. Some of the recent buying has come from hedge funds covering short positions, or buying back stocks they had bet against. That can drive prices up quickly, but it "may fade if fundamental investors do not participate," LPL wrote.
LPL suggests watching two things. First, whether hedge funds' exposure continues to shrink. Second, whether the rally broadens beyond a handful of AI leaders. A slow rebuild with wider participation would be healthier than a rush back into the same crowded names.
Hedge funds often sell because they have to -- whether to cut leverage, meet risk limits, or protect short-term results. Those pressures don't apply to someone investing for retirement over 10 or 20 years. And because the selling was mostly about reducing risk rather than a view that AI is a bust, it isn't a strong signal that the businesses are in trouble.
That doesn't mean ignoring the warning. Last week showed how much risk there is in owning the same popular stocks as everyone else. If a handful of AI names make up a big share of your portfolio, consider spreading your money across more tech stocks and other sectors.
As LPL put it, lower hedge fund exposure "may eventually create a healthier opportunity set." But "low exposure alone is not a buy signal." The best approach is to stay invested, stay diversified, and let the forced sellers do the panicking.
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Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.
Hedge Funds Just Turned Against AI Stocks for the First Time Since 2023. Should You Follow Them? was originally published by The Motley Fool
