The "Golden Age" of AI hardware: US hedge funds are raking in huge profits

The explosive demand for artificial intelligence hardware is turning the early positioning of hedge funds into substantial returns. In April this year, US stock-picking hedge funds recorded their best monthly performance in over twenty years, with funds betting on AI chips and related equipment emerging as the biggest winners.

According to an industry index compiled by research firm PivotalPath, stock-picking funds rose an average of 6.5% in April, marking the best monthly performance since December 1999; technology-themed funds climbed even higher, rising 10.3% — the highest monthly gain in the 28-year history of the index. Point72, Whale Rock Capital Management, and Seligman Investments, all benefited from the strong performance of semiconductor stocks and equipment companies, recording robust monthly returns.

This surge came amid an unfriendly macro environment — ongoing conflict with Iran, rising consumer prices and inflation expectations, and a declining probability of Federal Reserve interest rate cuts — but the strength of the AI sector has been enough to overcome these obstacles. Data from Morgan Stanley shows hedge funds’ net overweight in semiconductor stocks has soared from 5.5% a year ago to 20% now, the highest in the past decade, with AI supply chain related stocks contributing nearly two-thirds of last month’s hedge fund long profits.

The strong momentum continued in May. According to Morgan Stanley, as of last Thursday, global hedge funds had an average monthly gain of about 1.4%, with the bank noting in a client report that the funds’ "strong start this month is largely attributable to their ultra-high exposure to broad AI themes."

Explosive Demand for AI Computing Power: Tech Giants’ Combined Capital Expenditures Reach $670 Billion

The rapid adoption of AI programming tools and AI agents has triggered strong, broad demand for computing resources — from Intel’s central processing units to Sandisk’s memory chips, all are in short supply. Microsoft, Alphabet, Meta Platforms, and Amazon collectively plan to spend $670 billion on capital expenditures this year, most of which will go to data centers equipped with advanced chips. Strong client demand has pushed up chip prices and driven tech giants to sign longer-term purchase contracts with suppliers.

Against this backdrop, multiple semiconductor stocks have already recorded triple-digit gains this year, and last week, Samsung Electronics joined the trillion-dollar market cap club.

Alex Sacerdote of Whale Rock Capital Management said at the Sohn Investment Conference on Tuesday:

"Aside from AI being the most computing power-hungry thing we’ve ever seen and supply shortages stretching as far as the eye can see, we are in a golden age of hardware. All the companies that nobody paid attention to before have now become golden businesses."

Funds Record Major April Gains, Some Achieving Best Monthly Performance Since Inception

April’s dazzling performance surpassed the typical annual returns of many fund managers. Whale Rock Capital Management’s public equity portfolio, run by Alex Sacerdote, gained about 39% in April, with positions in Sandisk, Korean memory chip maker SK Hynix, and Japanese manufacturer Kioxia as the main sources of profit this month.

According to media reports citing insiders, Point72’s flagship fund rose about 4.5% in April — its best monthly performance in more than five years; the AI-themed hedge fund Turion, jointly managed by Steve Cohen and portfolio manager Eric Sanchez, soared by 15% in the same period.

According to an investor report obtained by the media, the Seligman Tech Spectrum fund, managed by Paul Wick, gained nearly 20% in April, its best monthly performance since the fund’s inception in 2001. Seligman is a subsidiary of Columbia Threadneedle Investments, with its hedge fund strategy managing about $4.5 billion as of February. In his March letter to investors, Paul Wick disclosed that the fund’s top five holdings at the time included chipmaker Broadcom, chip equipment suppliers Applied Materials and Lam Research, and AI data center power supplier Bloom Energy.

Semiconductor Overweight Reaches Ten-Year High, Cyclical Risks Still a Concern

Hedge funds’ semiconductor positions are now at their highest level in the past decade. Morgan Stanley data shows that the net proportion of semiconductors in hedge fund portfolios has jumped from 5.5% a year ago to 20% now, with AI supply chain stocks contributing close to two-thirds of last month’s hedge fund long profits.

However, the semiconductor industry is renowned for its pronounced cyclicality, with supply shortages often following periods of overcapacity. During the pandemic, consumer spending on hardware devices such as laptops and smartphones drove chip stocks up; afterwards, as demand normalized and expanded industry capacity became idle, related stocks fell sharply.

Nonetheless, this round of AI hardware trading has shown remarkable resilience in navigating macroeconomic headwinds. Even after short-term setbacks at the end of last year, this theme continues to drive the positioning and monthly returns of hedge funds.

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