Investing.com — Goldman Sachs’ research team has highlighted a continued shift in hedge fund and mutual fund positioning towards the semiconductor sub-industry and away from software at the start of Q2 2026. The move follows an overall trend of investors pulling out of companies offering legacy software services due to the threat of disruption from artificial intelligence.
A furious rally in the AI trade has played a driving role in helping Wall Street return to record levels this year. Notably, the Philadelphia Semiconductor Index – seen as a barometer for semiconductor stocks – posted an 18-day win streak from the end of March till the end of April, the longest such run in its history.
The AI trade helped U.S. equities scale record levels despite a protracted conflict between Washington and Iran and a global bond sell-off driven by increased expectations for interest rate hikes across the world to combat the inflationary shock emerging from surging oil prices. Rising rates historically tend to have an outsized effect on technology stocks because their massive valuations rely heavily on profits expected in the future.
Meanwhile, there has been a shift in perceptions in the AI trade this year. Investors’ perceptions have quickly moved from “AI will lift the entire technology sector” to “AI will result in clear winners and losers.” Software companies that provide processes such as office and enterprise products, HR services, and food delivery have been identified as areas which will see major disruption from AI. While the is up a whopping 72.3% YTD, the is down 11.1%.
Goldman Sachs earlier this week published a report which analyzed $9 trillion of equity positions at the start of Q2.
“Within the Info Tech sector, hedge fund and mutual fund positioning has mirrored the broader market shift away from Software and toward Semiconductors. Mutual funds entered Q2 carrying their lowest exposure to Software since at least 2012. Excluding the mega-caps, the mutual fund tilt in Semis vs. Software is the largest since 2012. Similarly, hedge funds entered Q2 with Software registering its smallest weight in the hedge fund long portfolio since 2019 and the weight of Semis at a record high,” Goldman Sachs analysts led by Ben Snider said in a research note on Friday.
The analysts found that, at the stock level, emerged as one of the largest reductions on a net shares basis across both hedge funds and mutual funds. The latter also reduced ownership in Microsoft’s Magnificent 7 peers, while hedge funds reduced holdings in most of the Mag 7 but, on a net basis, increased positions in and .
Within semiconductors, the analysts found that hedge funds added to , , and , while mutual funds added to and .