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Hedge funds are bailing on Magnificent 7 stocks

Positioning in the group recently sank to fresh one-year lows, according to Goldman Sachs.

Luke Kawa

The megacap tech stocks underpinning the bull market in US equities — Apple, Nvidia, Microsoft, Google, Amazon, Meta, and Tesla — are increasingly out of favor among the hedge-fund community.

Scott Rubner, managing director for global markets at Goldman Sachs, flagged that hedge-fund positioning in the so-called “Magnificent 7” stocks is at fresh one-year lows, citing data from the bank’s prime brokerage.

GS PB Data
Source: Goldman Sachs

“Hedge funds have (relatively) left this set of the market for 1) other AI plays and 2) bigger Trump beneficiaries,” he wrote in a note to clients on Friday.

Interestingly, the Mag 7 cohort as a whole has outperformed the S&P 500 since November 5, but that’s all down to one stock: Tesla.

For passive investors in the S&P 500, this dynamic might be a bit concerning since this group makes up over 30% of the index. We need only to look back to mid-July to see that when investors rotate out of Big Tech into something else (in that instance, small caps), that shift can often be a net negative for the US benchmark gauge.

The good news is that, assuming Goldman’s prime brokerage data is a fair representation of hedge-fund activity at large, it looks like this exodus has taken place without too much in the way of damage at the index level, with the S&P 500 less than 1% below its record closing high as of midday Friday.

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Constellation, Talen, and NRG surge as BNP analysts see “golden (AI)ge” ahead for them

Power producers Talen Energy, Constellation Energy, and NRG jumped Wednesday, benefiting in part from a rosy write-up by analysts at BNP Paribas, who launched coverage of all three at “outperform” and argued that the AI energy trade — a big AI-related winner in recent years that has lagged a bit recently — is due for a second wind.

That view was in a broad note on the independent power producer segment of utilities industry that the analysts published Wednesday, titled “The Golden (AI)ge of IPPs.”

Here’s the gist of it:

US independent power producers (IPPs) have lagged the AI basket for 6+ months, after garnering much attention in 2023-1H25. Investors are caught up in the minutia of perceived headwinds: underwhelming pace of power purchase agreement deals, distributed behind-the-meter solutions stealing the ‘time-to-power’ edge, pressure for data centers to bring generation and not tighten the grid, etc.

And yet, as we demonstrate, despite all this noise, the wave of rising load is at the cusp of an acceleration that will nonetheless overwhelm new supply—well into the 2030s, in our view. Hop on or risk missing the resurgent AI trade this decade.

BNP’s price targets for the stocks — Constellation ($407), NRG ($232) and Talen ($549) — implied gains of 32%, 50%, and 68% respectively. (Though today’s gains would reduce those potential upside targets somewhat for new buyers.)

US independent power producers (IPPs) have lagged the AI basket for 6+ months, after garnering much attention in 2023-1H25. Investors are caught up in the minutia of perceived headwinds: underwhelming pace of power purchase agreement deals, distributed behind-the-meter solutions stealing the ‘time-to-power’ edge, pressure for data centers to bring generation and not tighten the grid, etc.

And yet, as we demonstrate, despite all this noise, the wave of rising load is at the cusp of an acceleration that will nonetheless overwhelm new supply—well into the 2030s, in our view. Hop on or risk missing the resurgent AI trade this decade.

BNP’s price targets for the stocks — Constellation ($407), NRG ($232) and Talen ($549) — implied gains of 32%, 50%, and 68% respectively. (Though today’s gains would reduce those potential upside targets somewhat for new buyers.)

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