Goldman Sachs Urges Selective AI Bets as Hedge Funds Slash Tech Exposure

Goldman Sachs said the recent pullback in AI-linked equities has created selective buying opportunities, but cautioned against a broad bottom-fishing strategy as hedge funds cut leverage at the fastest pace in years. Goldman's hedge fund VIP basket posted its worst single-day performance Thursday since 2011, while the bank's prime brokerage logged its largest tech selloff since September 2024. Fundamental long-short funds' beta-adjusted net leverage fell 3.5 percentage points this week and 10.3 points since October to a one-year low, dropping to the first percentile of the past three years' range. Meta cut free cash flow negative after raising its 2026 capex forecast floor to $135 billion, with shares down 7% Thursday. The S&P 500 ex-AI index has outperformed the broader benchmark this year for the first time, and rose 6.5% in October. Goldman strategist Louis Miller cited three reasons for selective purchases: momentum exposure at its lowest since June 2025, meaningful price corrections, and stable earnings estimates for AI leaders. The bank favors firms with steady profit outlooks over a sector-wide rebound.