Hedge funds continued to add to the AI trade in early Q2 2026

Overview

This report is Goldman Sachs' hedge fund trend monitor, analyzing hedge fund equity holdings as of early Q2 2026. The research is based on 13-F filings available through 2026-05-18 and covers 1,059 hedge funds with $4.6 trillion in total equity positions. The key observation is that after the volatility at the end of Q1, hedge funds continued to go "All In on AI," concentrating their additions in Information Technology, semiconductors, AI infrastructure, communication services, and financials, while reducing exposure to most other sectors.

Core views

First, the AI trade remains the main theme behind hedge fund portfolio changes, with broader ownership across semiconductor, data center, inference, and optical networking names; SNDK, LRCX, and AMAT are representative names gaining popularity. Second, fund performance recovery has mainly come from market beta and tech-long alpha; popular Information Technology longs are up 62% year to date, materially outperforming the sector and concentrated shorts. Third, leverage and crowding warrant caution: net leverage among fundamental long/short funds rose to the highest level since 2022, gross leverage sits at the 94th percentile over the past five years, and short interest has also started to rise again among large-cap stocks. Fourth, ETFs are expanding from a pure hedging tool into a long-exposure tool, with ETF weight in long portfolios rising to a post-financial-crisis high.

Analysis framework

The report combines 13-F holdings, GS Prime Services leverage data, short interest, relative sector weights, thematic baskets, and Goldman Sachs' Hedge Fund VIP portfolio to track quarter-to-quarter shifts in hedge fund positioning. The focus is not on forecasting the fundamentals of any single company, but on identifying capital flows, crowded trades, sector tilts, popular longs, concentrated shorts, and names whose popularity is rising or falling.

Methodology notes

• Holdings filing analysis13-F holdings tracking

  Use public 13-F filings to identify changes in hedge fund long equity holdings

  The sample is based on 13-F filings available through 2026-05-18 and captures positions at the end of Q1 2026. This method covers outright and leveraged long positions, but it cannot fully capture synthetic exposure created by options, swaps, futures, and other derivatives.

• Portfolio crowdingHedge Fund VIP List

  Identify the ten most common long holdings among fundamental hedge funds

  The VIP list contains the 50 stocks most frequently found in the top-ten holdings of fundamental funds and is used to capture the core names that most influence hedge fund long performance; this period's leaders include AMZN, NVDA, GOOGL, MSFT, META, TSM, AAPL, AVGO, and MU.

• Popularity changeRising Stars and Falling Stars

  Measure changes in stock popularity through increases or decreases in the number of holding funds

  The report argues that names with rising holder counts, or Rising Stars, have historically outperformed peers in the following quarter, while names with falling holder counts, or Falling Stars, have tended to be weaker; this period AMAT and MU remained Rising Stars, while CRM ranked among Falling Stars for a second consecutive quarter.

• Risk monitoringshort interest and leverage monitor

  Combine short interest and leverage levels to assess portfolio risk management and market crowding

  The report uses GS Prime Services data to monitor net and gross leverage among fundamental long/short funds, and uses short interest as a percentage of market cap to track short-selling pressure; median S&P 500 short interest rose to 3.0%, the highest since 2011.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• AI infrastructure and semiconductors

  The clearest thematic area of increased hedge fund allocation

  Strengths

  Semiconductor long weight is at a record high, and fund ownership has broadened across AI semiconductors, data centers, inference, and optical networking baskets; LRCX, AMAT, ASML, and META are drawing attention.

  Weaknesses

  The trade is highly crowded and depends heavily on momentum and risk appetite for large-cap tech.

  Comparison

  Popular Information Technology longs are up 62% year to date, clearly outperforming the sector and concentrated shorts within the sector.

  Risks

  If AI capex expectations cool, earnings delivery disappoints, or momentum reverses, crowded longs could face sharp drawdowns.

• Hedge Fund VIP portfolio (GSTHHVIP)

  The core basket that tracks the most important hedge fund long holdings

  Strengths

  Up 13% year to date, and historically has outperformed the S&P 500 in 59% of quarters since 2001, with an average quarterly excess return of 53 bp.

  Weaknesses

  The portfolio is not sector neutral versus the S&P 500; Information Technology weight is 36%, making volatility relatively high.

  Comparison

  Outperformed the equal-weight S&P 500 by 7%, but trailed the concentrated short basket's 27% gain.

  Risks

  Large-cap tech and AI-linked weights are high, so a reversal in crowded trades could pressure the portfolio simultaneously.

• ETF exposure

  Hedge funds are increasingly using ETFs to obtain long market exposure

  Strengths

  ETF weight in long portfolios reached 4.9%, the highest since the financial crisis; SPY and IVV are the most popular ETFs.

  Weaknesses

  Short ETF exposure still accounts for 65% of total ETF exposure, indicating that hedging remains the dominant use case.

  Comparison

  ETF longs now make up 35% of total ETF exposure, while single-name shorts account for only 31% of total single-name exposure, highlighting a clear structural difference.

  Risks

  If index volatility rises, ETF exposure may amplify both directional risk and liquidity risk at the same time.

• Short interest and concentrated shorts

  A gauge of risk management, crowded shorting, and potential squeeze pressure

  Strengths

  Short-interest data helps identify stress points in the market, and defensive sectors and small caps show relatively high short interest.

  Weaknesses

  Some concentrated shorts have been rising year to date, indicating that short trades are under pressure.

  Comparison

  Median Russell 2000 short interest is 6.4%, about twice the median levels for the S&P 500 at 3.0% and the Nasdaq-100 at 2.9%.

  Risks

  If high-short-interest stocks continue to rise, short covering could be triggered; if the market falls, high short interest may also reflect expectations for downside risk.

Key data

• Sample size1,059 hedge funds, $4.6 trillion in total equity positionsOf that, $3.1 trillion is long and $1.5 trillion is short, with positions as of early Q2 2026.
• Fund returns+7% YTDEstimated year-to-date return for U.S. equity long/short hedge funds as of 2026-05-21.
• Hedge Fund VIP portfolio return+13% YTDOutperformed the equal-weight S&P 500 by 7%, but lagged the most concentrated short basket's 27% gain.
• Change in net tilt for Information Technology+853 bpQuarterly increase in hedge fund net tilt to the Information Technology sector, the largest quarterly move ever recorded for the sector.
• Semiconductor portfolio weight10%Record weight of semiconductors in hedge fund long portfolios.
• ETF long share4.9%ETF weight in hedge fund long portfolios reached the highest level since the financial crisis.
• ETF longs as a share of total ETF exposure35%ETF longs now account for 35% of hedge fund total ETF exposure, showing that ETFs are no longer just a hedging tool.
• Median S&P 500 short interest3.0% of market capRose to the highest level since 2011.
• Gross leverage historical percentile94th percentileGross leverage among fundamental long/short funds is at a high level versus the past five years.
• Median Russell 2000 short interest6.4% of market capAbout twice the median levels for the S&P 500 and Nasdaq-100.

Impact & implications

For investors, the report signals that AI infrastructure and large-cap technology stocks remain the most important crowded long trades for hedge funds. If tech momentum continues, these longs may keep supporting fund performance; however, high leverage, high momentum exposure, and elevated short interest in some AI-related stocks also imply both drawdown risk and squeeze risk. At the sector level, Information Technology, Communication Services, and Financials were added to, while Energy, Consumer Discretionary, Materials, and Industrials were cut across most sub-industries, showing that capital concentration is increasing further. The rise in ETF usage also suggests that funds are becoming more flexible in managing index and directional exposure.

Risks

• 13-F data is lagged, and the report uses positions at the end of Q1 2026, so it cannot fully reflect real-time trading.
• 13-F does not require disclosure of options, swaps, futures, or other derivatives, so synthetic long or synthetic short exposure may be missed.
• The report does not have complete coverage of international holdings, so the conclusions are more focused on the U.S. equity market.
• High leverage and high momentum exposure make hedge funds more sensitive to market reversals, tech-stock pullbacks, and the unwinding of crowded trades.
• There are also stocks with high short interest among AI-related names, which shows that the market remains divided on the fundamentals or valuations of certain companies.

What to watch

• Whether popularity continues to rise for AI semiconductors, data centers, inference, and optical networking names.
• The subsequent performance of new additions to the Hedge Fund VIP list, especially LRCX, MRVL, VST, SPGI, and UNH.
• Whether the +853 bp net tilt increase in Information Technology leads to further crowding or profit-taking.
• Whether net leverage and gross leverage among fundamental long/short funds remain at elevated percentiles.
• Whether median short interest for the S&P 500, Nasdaq-100, and Russell 2000 continues to rise.
• Whether ETF long share continues to break above the post-financial-crisis high, especially through changes in the use of index ETFs such as SPY and IVV.
• Whether the Rising Stars and Falling Stars lists continue to signal future relative performance.