Hedge funds piled into tech stocks in the weeks before Nvidia earnings, now, they’re cashing out and selling at the fastest pace in seven months

Hedge funds piled into tech stocks in the weeks before Nvidia earnings. Now, they’re cashing out and selling at the fastest pace in seven months, per Bloomberg.


Nvidia's impressive earnings report last week triggered significant outflows from the tech sector among hedge funds, as they moved to reduce their exposure after building up positions ahead of the chip maker's results.

According to a note from Goldman Sachs' prime brokerage unit, hedge funds have been selling tech stocks at the fastest pace in seven months, following a six-week period of buying leading up to Nvidia's earnings announcement last Wednesday.

"After a 6-week buying streak, HFs unloaded Tech stocks at the fastest pace in 7+ months, as the sector was net sold for 4 straight sessions incl. Thurs post NVDA results," the analysts stated.

Nvidia's earnings announcement last Thursday caused a stir among investors, adding $267 billion in market cap, marking the largest-ever addition to market value in a single trading session.

"Despite the 'good vibes' last week and strong NVDA earnings on Wed, the NDX has traded lower 4 of the last 5 sessions, as price action and activity levels have started to show some more 2-way action to it, raising some tension about the sustainability of momentum from here," noted Peter Callahan, a specialist in the tech, media, and telecom sectors.

Hedge fund investors have redirected their focus to other high-quality stocks, moving cash from the tech trade to sectors such as real estate, consumer staples, and materials, as highlighted in the note.

The analysts also mentioned that as the earnings season for the Magnificent Seven (the seven largest U.S. tech companies) comes to a close, their performance is expected to give way to broader economic indicators such as inflation data and potential shifts in the Fed's rate-cutting timelines.

Despite this shift, confidence in tech stocks remains strong, with Nvidia alone driving 22% of the S&P 500's weekly gain last week. The put-call skew, a measure of investor fear, has decreased, and retail trading in Nvidia surged to the 99.96th percentile in the one-week average notional amount traded over the last five years.