(HedgeCo.Net) After weeks of sustained selling in technology—especially in software names perceived as vulnerable to rapid advances in artificial intelligence—hedge funds are creeping back into tech. The shift is showing up in prime-brokerage flow data and client notes: managers who had been reducing exposure are now selectively adding to positions in large-cap technology and battered software, even as broader hedge fund equity positioning remains cautious and trading continues to be dominated by short-term risk controls.
This is not the return of the “one-way AI trade” that defined much of the last cycle. It is a more tactical, risk-managed re-entry—one that reflects how hedge funds behave when a crowded trade unwinds, valuations reset, volatility normalizes, and dispersion increases. It also reflects an emerging market reality: investors are trying to distinguish between AI as a business model tailwind and AI as a competitive shock—and the line between those two narratives has been moving fast.
The new buying wave does not mean the hedge fund community is suddenly “bullish tech” again. It means the industry believes the selloff has created tradable opportunity—and that the balance of risk and reward has improved enough to justify adding exposure, particularly in areas where selling became extreme. It also means hedge funds are once again willing to raise leverage toward the top end of their recent range, even as they remain sensitive to macro and policy volatility.
The setup: why tech became the epicenter of hedge fund de-risking
The early 2026 market narrative has been unusually punishing for technology. In the software complex, fear wasn’t only about rates, valuation, or cyclical slowdown. It was about something more existential: the idea that AI could rapidly commoditize certain software categories, compress pricing, and rearrange competitive moats—turning “quality software” into a new kind of disruption story.
That framing matters because it changes behavior. When investors believe disruption risk is accelerating, they stop debating incremental growth rates and start debating survival curves. That’s the kind of narrative that can force de-grossing across long/short books even when fundamentals haven’t yet deteriorated.
The Financial Times described the dynamic as a sharp rotation away from software, with a U.S. software index down dramatically year-to-date (in that reporting, roughly a mid-20% decline), and an investor shift toward sectors perceived as less exposed to AI-driven disruption.
Prime brokerage data cited by Reuters reinforced how quickly hedge funds responded. A JPMorgan client note described funds selling tech for weeks—then reversing course as they began buying the largest technology stocks and even names viewed as “AI vulnerable.”
This is classic hedge fund behavior in a stress unwind: when the market begins to punish a theme aggressively, managers reduce exposure first, revisit fundamentals second, and only rebuild risk once prices and positioning have reset.
The inflection: what changed in the last week
The most important change was not that macro risk vanished—it didn’t. The change was that the marginal seller began to disappear in specific parts of tech.
Reuters’ reporting pointed to renewed hedge fund buying in big tech and in software after a heavy selloff, signaling that the prior “rush to cut” was easing and that managers saw better entry points.
At the same time, broader market action began to reinforce the sense that the selling wave might be overextended. Another Reuters report described a U.S. equity rebound led by tech, with semiconductors and software participating as AI-related concerns moderated, even if only temporarily.
Put together, the message is: tech may still be controversial, but it is no longer “one-way” in the same way it was during the sharpest part of the drawdown. Hedge funds often step back in precisely when the market shifts from forced liquidation to two-sided trading.
Why hedge funds re-enter after selloffs: the mechanics of a “crowding reset”
There’s a reason hedge funds frequently buy what they were recently selling. It’s not fickleness—it’s structure.
Most hedge funds run under tight risk constraints: gross exposure limits, net exposure limits, factor and sector caps, stop-loss rules, and drawdown controls. When volatility spikes or correlations jump, risk models reduce permitted exposure. When performance falls quickly, pods and PMs cut risk to preserve capital. That’s how multi-manager platforms survive.
But these mechanical exits can create dislocations. When many players cut at once—especially in liquid large-cap tech and in widely held software—the selling can overshoot fundamentals.
Once prices reset and volatility stabilizes, those same risk systems begin to allow re-risking. Managers may not rebuild the exact same book, but they often re-enter the same pond—because that’s where liquidity and opportunities exist.
This matters because the recent tech selloff, particularly in software, carried the signature of “positioning-driven” declines: sharp drawdowns, rapid narrative shifts, and heavy rotation out of a crowded area. The FT highlighted how sentiment and short-term hedge fund risk tolerance can amplify these moves, even when longer-term views are more nuanced.
What they’re buying: mega-cap tech and “left-for-dead” software
The Reuters/JPMorgan note described hedge funds buying the biggest technology stocks and also stocks viewed as vulnerable to AI—an important nuance.
Mega-cap tech buying is easier to understand: these companies tend to have durable cash flows, strong balance sheets, and the ability to invest in AI at scale. Even skeptics often treat them as “quality compounders” that can survive multiple regimes.
The more interesting signal is hedge funds buying the “AI vulnerable” cohort. That suggests managers see at least some of the narrative as over-discounted. In other words: yes, AI may disrupt parts of the software stack, but the market may have priced disruption as immediate, universal, and margin-destroying across the board—an assumption that rarely holds uniformly.
In practice, hedge funds are likely segmenting software into buckets:
- AI beneficiaries: infrastructure, compute-adjacent tools, data platforms, and workflow layers that gain pricing power from AI adoption.
- AI adapters: incumbents that may face disruption risk but also have distribution, data, and customer integration that can be leveraged to integrate AI.
- AI casualties: narrow tools with weak moats, limited differentiation, or high vulnerability to AI-native competitors.
The re-entry suggests hedge funds are selectively buying in the first two buckets—and potentially pairing them with shorts in the third, turning the theme from a directional bet into a relative-value trade.
Leverage is rising again—carefully
One of the most consequential details in Reuters’ reporting was that hedge fund leverage is approaching the highest level in a year, according to a Goldman Sachs note referenced by Reuters.
That does not necessarily mean hedge funds are “all in.” In many cases, rising leverage reflects a return of long/short activity: rebuilding gross exposure while keeping net controlled, and expressing views through paired trades.
Still, leverage climbing after a sharp unwind is meaningful. It implies:
- Risk systems are easing as volatility and drawdowns stabilize.
- Opportunity sets are widening, making managers willing to put money to work again.
- Conviction in dispersion is rising—meaning managers believe stock selection can matter again.
Goldman Sachs has also framed the broader hedge fund environment as one with renewed momentum coming out of 2025 performance and inflows, which can support more active risk-taking into 2026.
A paradox: hedge funds bought tech, but also sold global equities aggressively
This is where the story gets nuanced. Even as hedge funds re-entered parts of tech, Goldman prime brokerage data (as reported by Bloomberg) indicated that hedge funds’ net sales of global stocks recently hit the fastest pace since a prior market stress period, with activity driven by short sales.
That apparent contradiction is actually consistent with modern hedge fund behavior. Many funds are simultaneously:
- Reducing broad beta (selling global equities, trimming net exposure), while
- Adding targeted risk (buying tech winners or oversold names), while
- Increasing gross through long/short pairs.
In other words, managers may be less bullish on “the market” but more excited about specific opportunities inside tech—especially where dispersion is high and the selloff created mispricings.
What it means for markets: tech becomes the battlefield for the next regime
Tech has become the arena where 2026’s biggest questions are being priced:
- Will AI spending produce returns that justify capex and valuations?
- Will AI compress software margins faster than incumbents can adapt?
- Will productivity gains boost growth broadly, or concentrate gains in a small set of firms?
- How quickly will regulation, enterprise adoption, and competitive dynamics evolve?
That’s why the tech rebound matters beyond the sector. If hedge funds are returning to tech, it signals that they believe:
- The market is moving from panic to price discovery, and
- There is enough clarity (or at least enough mispricing) to justify taking risk again.
Reuters’ broader market coverage highlighted that tech strength helped lift U.S. equities as investors processed AI newsflow and specific catalysts.
The risks: why this could still be a “dead-cat bounce” for parts of software
Hedge fund buying is not a guarantee of a durable bottom. In fact, early hedge fund buying after a selloff sometimes marks a tradable bounce, not the start of a new uptrend.
Key risks remain:
1) Narrative volatility
If new AI capabilities or competitive announcements suddenly reshape expectations, software could reprice again quickly.
2) Earnings and guidance reality
If companies begin confirming pricing pressure, churn, or slower growth due to AI disruption fears becoming real, the market can shift from “story-driven” to “fundamentals-driven” downside.
3) Policy and macro shocks
Even well-positioned tech names can get caught in broader de-risking if rates, trade policy, or geopolitical issues trigger another correlation spike. Reuters’ reporting emphasized the broader environment remains sensitive to policy uncertainty and macro catalysts.
How allocators should read this: a signal about opportunity, not a guarantee about direction
For institutional allocators and family offices, the most important takeaway isn’t “buy tech because hedge funds are buying.” It’s what the behavior implies about regime.
When hedge funds return to a sector after weeks of selling, it usually means:
- Positioning has reset enough to create asymmetric entries.
- Dispersion is high enough for long/short to work.
- Volatility has become tradable rather than paralyzing.
That’s good for hedge fund opportunity sets broadly—even beyond tech—because dispersion and rotation are the raw material for alpha.
At the same time, the specifics matter: the re-entry is likely being executed through relative-value frameworks (long resilient incumbents, short structurally threatened names) rather than broad “AI beta.” That’s consistent with a market where the story is still evolving and where managers want optionality if the narrative shifts again.
The bottom line
Hedge funds buying tech again after weeks of selling is less a “bullish turn” than a sign that the forced unwind is easing and the risk-reward has improved in parts of the sector. Flows suggest selective re-risking in mega-cap tech and oversold software, even as managers stay cautious on broader equity beta and remain highly sensitive to narrative and macro catalysts.
In 2026, technology is not just a sector—it’s the market’s primary debate about disruption, capex, productivity, and competitive moats. Hedge funds are stepping back into that debate because prices moved far enough, fast enough, to make the trade worth engaging again.