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Hedge funds reduce tech stock bets amid Chinese AI

competition

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Goldman Sachs ( GS ) notes hedge funds' reluctance to invest in

U.S.

tech sector

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DeepSeek challenges U.S. AI dominance, raising investor

concerns

By Nell Mackenzie

LONDON, Jan 27 (Reuters) - Hedge funds were already

waiting to see if a U.S.-fostered, home-grown artificial

intelligence boom would continue as China's new AI model was

emerging to challenge U.S. dominance in the sector, a Goldman

Sachs ( GS ) note said.

Nasdaq futures slumped and technology shares slid on

Monday as the swelling popularity of a Chinese discount AI model

wobbled investors' faith in the profitability of what the United

States has to offer.

Last week, hedge funds fled their bets on tech stocks, a

Goldman Sachs ( GS ) note from Friday and seen by Reuters Monday

showed. The data, from Goldman's prime brokerage desk, covered

data from Jan 17 - 24. Bank prime brokerage desks lend to hedge

funds and see their trading flows.

Hedge funds also continue to sell U.S. stocks adjacent to

the tech industry, including those companies which would serve

as its infrastructure. These power and energy-related companies

would benefit from any AI advancements: from data centres

fuelling AI models to those building charging stations for

electric vehicles, said Goldman.

Hedge funds, over the last 12 months, have remained

reluctant to return with conviction to this stock sector after

they dumped these stocks in large numbers last year, from June

to August, the note added.

Total bets, or trade flows, have seen hedge funds over the

past year more likely to sell these stocks, many of which would

grow in value with a U.S.-led AI boom, the note said.

A trader might sell a stock in order to bet its value will

decline or to ditch a losing bet.

Those smaller number of hedge funds which have held on to

their trades currently have the highest number of long positions

in two years, said the research from Goldman Sachs' ( GS ) prime

brokerage desk.

A long position bets the value of a stock will rise.

Big technology firms have been investing tens of billions to

develop better U.S. AI infrastructure after the success of

OpenAI's ChatGPT.

OpenAI and Japanese conglomerate SoftBank on Jan 21

each committed $19 billion to fund Stargate, a joint venture to

develop data centers for AI in the U.S.

"Competition from global players like the Chinese AI startup

DeepSeek has raised questions about the sustainability of U.S.

dominance in this sector, despite substantial domestic

investments," said Bruno Schneller, managing director at Erlen

Capital Management.

Hedge funds seem to be taking a "wait-and-see" approach on

the U.S. stocks related to this industry, said Schneller, whose

firm invests in hedge funds.

"Large-scale projects like the Stargate AI initiative bring

regulatory complexities that are still unfolding. The lack of

clarity surrounding the execution and enforcement of these

policies keeps many investors on edge," said Scheller.