Hedge Funds Gave AI a $2 Trillion “Rekt” — The Leverage Lesson 🧠

Hedge funds erased all of their AI stock purchases made since the start of 2025 in five consecutive sessions in October, according to Goldman Sachs prime brokerage data, as a broad stock selloff wiped about $2 trillion from the market. Morgan Stanley said hedge funds had cut more than 8% of their total stock bets since June, their biggest retreat since at least 2017.

The decline was concentrated in technology shares. While the S&P 500 barely moved through late October, Samsung, SK Hynix, Micron, and SanDisk lost more than $700 billion in under two weeks. A late-October selloff also erased about $2 trillion from the Nasdaq-100. Goldman Sachs’ basket of hedge funds’ favorite stocks fell 4.2% on October 22, its worst day since 2011.

Hedge funds use borrowed money to increase the size of their bets. As prices fell, leveraged losses accelerated, prompting further sales in a risk-reduction cycle. On the heaviest trading day, funds sold shares they owned about 3.5 times faster than they opened new bearish positions, while the overall selloff covered about $20 billion. Goldman’s prime desk summarized the move: “If last Thursday felt bad, today has been worse.”

Macro investor Jordi Visser attributed the downturn to leverage rather than weaker demand, estimating that it took 18 months to build and 75 days to unwind. Corporate profits remained up about 20%, AI computing demand continued to outrun supply, and SK Hynix forecast a memory shortage until 2030. Nevertheless, Goldman Sachs viewed the unwinding as closer to its beginning than its end, noting that hedge funds’ AI holdings remained in the top 17% of the past three years.

Fundstrat’s Tom Lee suggested that one forced seller may have driven the slide, while reports published on October 25, 2026, and October 26, 2026, framed the retreat as one of the largest hedge fund equity deleveraging events in the last 30 years without a corresponding economic deleveraging.