Software and Services has fallen while Semiconductors and Semi Equipment has surged, creating a large performance gap. Hedge funds have reduced software exposure to the lowest long-portfolio weight since 2019, and mutual funds hold the widest underweight in software excluding Microsoft since 2012. Both fund types have rotated away from Software and toward Semis while maintaining near-record overall exposure and high net leverage, indicating deliberate positioning rather than de-risking. Hedge funds added to LRCX, AMAT, and ASML, while mutual funds increased positions in INTC and SITM. Even Microsoft was cut on net by both fund types last quarter. Earnings projections reflect skepticism about software’s AI-driven earnings contribution.
"Software & Services as an industry group is down 14% year-to-date and has lost 9% over the last 12 months. Semiconductors & Semi Equipment are up 38% YTD and have surged 104% in the past year. The performance gap is staggering, but it's a symptom, not the cause. The cause is a fundamental reassessment of where AI value actually accrues - and the answer, increasingly, is not in the application layer."
"Goldman's U.S. Weekly Kickstart, published May 22 and drawing on $9 trillion in equity positions at the start of the second quarter of 2026, doesn't editorialize. The numbers make the case: hedge funds have cut software to its lowest weight in their long portfolios since 2019. Mutual funds are carrying their widest underweight in software (excluding Microsoft) since 2012. Both fund types, Goldman notes, "continued their recent portfolio rotations away from Software and toward Semis" - a line buried in the middle of the report that deserves a banner headline."
"This is not panic. Hedge fund net leverage is running at the 85th percentile of the last five years. These funds are not de-risking. They are making a deliberate, consensus call - in broad daylight, with near-record overall exposure - that software is the wrong place to be. Hedge funds added to LRCX, AMAT, and ASML on net during Q2. Mutual funds piled into INTC and SITM."
"Even Microsoft - the one software company that was supposed to be AI-proof, the one name that always survived the rotation - was cut on net by both hedge funds and mutual funds last quarter. Goldman's own earnings projections capture the skepticism baked into its strategists' models. Info Tech is forecast to grow earnings by 31% in 2026 - but Goldman's top-down estimate of $92 in sector EPS contribution runs well below the $106 projected b"
#ai-investment-shift #software-vs-semiconductors #hedge-fund-portfolio-rotation #mutual-fund-positioning #equity-market-performance
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