For weeks, many of the market’s top tech stocks have mostly trended downward with only marginal momentum. Nvidia (NVDA) is in danger of falling below $100 per share, and Tesla TSLA will be back below $250.
This has been due to a mix of factors, but negative market momentum caused by speculation seems to be at its core. The tariffs imposed by the Trump administration have generated significant uncertainty, and since more tariffs are on the horizon, this trend looks poised to continue.
This presents a complicated outlook for investors, especially in the tech sector. Although many companies have indicated plans to increase artificial intelligence (AI) spending in 2025, most tech stocks are facing an uphill battle as market conditions continue to shift against them.
Now, new data from one Wall Street firm shows a new trend that points toward a massive shift in investment strategy.
Hedge funds have been betting against multiple major tech stocks lately.
The bears are closing in on former big tech favorites
With entire sectors struggling recently, experts have speculated that the U.S. is heading towards a bear market. The combination of high uncertainty and rising consumer prices across many sectors is encouraging investors to trim their positions in many companies, fueling even more negative momentum.
Whenever market conditions show signs of moving from bad to worse, short-sellers typically close in on companies they see as having much further to fall. While they often target less stable companies, a new report from Morgan Stanley (MS) reveals that hedge funds are ramping up their bets against several of the tech sector’s biggest names.
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The companies in question are Tesla, Nvidia, and fellow AI chipmaker Advanced Micro Devices (AMD) . The first two, members of the Magnificent 7, a group of top stocks responsible for driving most of the sector’s growth, have been down 15% for the past month.
AMD has slightly outperformed them both and is still in the green for the same period, albeit by only 1%. However, if hedge funds are betting against Nvidia, they will likely be just as bearish towards AMD, as the company produces similar AI chips and caters to similar customers. As Reuters reports:
“The hedge funds’ move illustrates how hedge funds are becoming more bearish about the stock market after back-to-back years of gains of over 20% in the S&P 500. The index is down 2.6% this year, as concerns about U.S. trade policy weigh.
Their targeted short bets on companies such as Nvidia and Tesla also underscore hedge funds seeing at least some of the once popular Magnificent Seven shares of the biggest U.S. tech firms as expensive.”
As the outlet also notes, every member of the Magnificent 7, except Meta Platforms, (META) is currently underperforming the index. While many of these top tech stocks are struggling, Tesla has been in full focus lately as Elon Musk’s antics on Capitol Hill have sparked a global backlash from consumers.
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AMD is not part of the elite group of tech stocks, but like Nvidia, it has struggled since the year began and is currently down 16% year-to-date (YTD). Both TSLA and NVDA are down 34% and 24% YTD, respectively, though all three companies battled high volatility last week, failing to sustain any real momentum.
Is the era of the Magnificent 7 finally over?
Since the launch of ChatGPT kicked off the AI revolution in 2023, many investors have focused on the Magnificent 7, shifting focus from the group of prominent tech stocks previously referred to as FAANG (Facebook, Amazon, (AMZN) , Apple, (AAPL) Netflix, (NFLX) and Google).
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Now that hedge funds are increasing their bets against several of the tech sector’s most prominent companies, it raises an important question: is the ride over for the Magnificent 7? This new short-selling data makes it seem likely, as does the fact that Wall Street has been racing to offload other tech stocks.
“Hedge funds are reducing their exposure to global information technology stocks at an accelerated pace, with the latest selloff marking the fastest decline in six months, according to a note from Goldman Sachs’ Prime Services desk,” reports Fortune.
That said, Morgan Stanley’s note also revealed that hedge funds unwound their short positions in both Apple and Google last week. This suggests that investors may not be abandoning the entire Magnificent 7 but may be turning their backs on companies with questionable growth prospects.
This would especially make sense for Tesla, given the company’s highly uncertain future. Several high-profile investors, including his own brother, have either sold off shares over the past month or called for Musk to step down as CEO.
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