Goldman Sachs: Hedge funds last week increased their record level of short positions in U.S. stocks, with the information technology sector being the hardest hit.

Due to concerns about artificial intelligence potentially disrupting existing business models spreading through the market, hedge funds are heavily building short positions in U.S. stocks.

Goldman Sachs’ prime brokerage team stated in a client report that, according to data dating back to 2016, last week saw the highest nominal single-stock short trading volume on record. Goldman noted that between January 30 and February 5, the scale of short selling was twice that of long buying.

Anxiety over how artificial intelligence will reshape the U.S. economy erupted on Wall Street, leading to a turbulent week in the markets. The trigger for this sell-off was Anthropic’s launch of a series of new tools designed to automate work tasks across various industries. Last week, 164 stocks in the software, financial services, and asset management sectors lost a combined $611 billion in market value.

Overall, hedge funds have net sold U.S. stocks for the fourth consecutive week, and the intensity of selling was the strongest since the so-called “Liberation Day” in early April last year.

The Goldman team said that information technology was the hardest-hit sector, recording the second-largest net outflow in five years. The software sector dominated this retreat, accounting for about 75% of net sales in that sector. Hedge funds’ overall net exposure to software stocks dropped to 2.6%, and the long-short ratio fell to 1.3, both at all-time lows.

Semiconductors and semiconductor equipment, as well as IT services, were among the few tech-related areas with net buying that week. The semiconductor stock index rose last week, widening the divide between chip stocks and software stocks—as investors punished industries they feared could be disrupted by AI, this divergence has continued to widen in recent months.

Outside of technology, hedge funds continued to rotate into defensive sectors. According to Goldman, healthcare was the top net-buy sector last week and has risen to first place in hedge fund inflows this year, overtaking industrials.

Last Friday, as bargain-hunting emerged, the stock market rebounded, but the Nasdaq 100 index still recorded its worst week so far this year.

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